Agricultural Situation

European Union and Prospects Agriculture and rural development

( Lithuania European Commission Directorate for Agriculture (DG VI)

Agricultural Situation

and Prospects in the

Central and Eastern

European Countries

This report has been prepared by DG VI in close collaboration with N. Kazlauskiene in Lithuania. Assistance was given by DG II, DGIA, EUROSTAT, TAIEX, and by Prof A. Segre' of the University of Bologna.

The manuscript has been prepared by Marina Mas­ trostefano. The author accepts full responsibility for any errors, which could still remain in the text. The closing date for data collection was April 1998.

The revision of the English text was carried out by Eithne Me Carthy A great deal of additional information on the European Union is available on the Internet. It can be accessed through the Europa server (http://europa.eu.int).

Cataloguing data can be found at the end of this publication.

Luxembourg: Office for Official Publications of the European Communities, 1998

ISBN 92-828-3698-3

© European Communities, 1998 Reproduction is authorized, provided the source is acknowledged.

Printed in Belgium Table of contents

Introduction ...... 5

About the data•••...... _ ...... 6

Executive Summary ...... 7

1. General economic situation ...... 12 1.1. The Lithuanian economy ...... 12 1.1.1. Political Background ...... 12 1.1.2. Macro-economic indicators ...... 12 1 .2. Agriculture in the overall economy ...... 14 1 .3. Agricultural economy ...... 14 2. Agricultural and rural society ...... 17 2. 1 . land Use ...... 17 2.2. Agricultural production and consumption ...... 17 2.2.1. Cereals ...... 18 2.2.2. Fodder crops ...... 19 2.2.3. Potatoes balance ...... 19 2.2.4. Oilseeds and Protein Crops ...... 19 2.2.5. Sugar beet and Sugar ...... 19 2.2.6. Fruit and Vegetables ...... 21 2.2.7. Livestock ...... 21 2.2.8. Milk ...... 21 2.2.9. Beef ...... 22 2.2.10. Pig meat ...... 22 2.2.11. Poultry meat ...... 22 2.3. Forestry ...... 23 2.3. Agricultural trade ...... 24 2 .4. Farm structures and privatisation ...... 25 2.5. Rural development ...... 26 2.6. Agriculture and the environment ...... 27 2.7. Up- and downstream activities ...... 27 2.7.1. Up-stream ...... 27 2.7.2. Down-stream ...... 27 2.7.3. Up and Down-stream privatisation ...... 28 2.7.4. Foreign Direct Investment (FDI) ...... 29 3. Agricultural and rural policies ...... 30 3.1 . Agricultural market policy ...... 31 3.1.1. Market prices and subsidies ...... 31 3.1.2. Price Gap ...... 32

CEC Reports - Lithuania :.. 1 3.1.3. Producers and Consumers Subsidy Equivalents ...... 33 3.2. Trade policy ...... 33 3 .2 .1. Border measures ...... 3 3 3.2.2. Trade agreements ...... 34 3.3. Structural Policy ...... 35 3.3.1. Support to lnvestment ...... 35 3.3.2. Taxation ...... 36 3.4. Rural Development Policy ...... 37 3.5. Agri-environmental Policy ...... 37 3 .6. Veterinary and Fitosanitary legislation ...... 37 4. Medium term outlook ...... 39 4. 1 . General Economic Framework ...... 39 4.2. Commodity projections (2003) ...... 39 4.2.1. Cereals ...... 39 4.2.2. Sugar ...... 40 4.2.3. Milk ...... 41 4.2.4. Beef ...... 4 1 4.2.5. Pig meat ...... 41 4.2.6. Poultry meat ...... 42 GlossaryI Abbreviations ...... 43

Main Sources Used ...... 44

ANNEX 1: The Veterinary Sector in Lithuania ...... 45

ANNEX 2: Phare activity - Agricultural sector ...... 4 9

2 c CEC Reports - Lithuania list of tables

TABlE 1 MACRO ECONOMIC INDICATORS ...... 13 TABlE 2 ROlE OF AGRICUlTURE IN THE ECONOMY ...... 14 TABlE 3 FooD CoNSUMPTION ...... 15 TABlE 4 GROSS AGRICUlTURAl OUTPUT 1990-'96 ...... 16 TABlE 5 SHARE OF PRODUCTION IN PRIVATE FARMS AND HOUSEHOlDS ...... 17 TABlE 6 CEREAlS BAlANCE SHEET ...... 18 TABlE 7 MAIN CEREAlS PRODUCTION ...... 18 TABlE 8 PERCENTAGE STRUCTURE OF CEREAlS PRODUCTION ...... 18 TABlE 9 POTATOES BAlANCE SHEET ...... 19 TABlE 10 RAPESEEDS BAlANCE SHEET ...... 19 TABlE 11 PEAS AND BEANS BAlANCE SHEET ...... 19 TABlE 12 SUGAR BEETS BAlANCE SHEET ...... 19 TABlE 13 WHITE SUGAR BAlANCE SHEET...... 20 TABlE 14 FRUIT AND BERRIES BAlANCE SHEET ...... 20 TABlE 15 VEGETABlES BAlANCE SHEET ...... 21 TABlE 16 MilK BAlANCE SHEET ...... 21 TABlE 17 BEEF BAlANCE SHEET ...... 22 TABlE 18 PIG MEAT BAlANCE SHEET ...... 22 TABlE 19 POUlTRY MEAT BAlANCE SHEET ...... 22 TABlE 20 ANNUAl FOREST FElliNG AND EXPORTS ...... 23 TABlE 21 TRADE BY REGION ...... 24 TABlE 2 2 lAND USERS AND FARM SIZE ...... 2 6 TABlE 23 AGRICUlTURE BUDGET 1994-1997 ...... 30 TABlE 24 PRICE SUPPORT MEASURES ...... 31 TABlE 25 AGRICUlTURAl PRICE COMPARISON ...... 32 TABlE 26 TARIFFS FOR AGRICUlTURAl PRODUCTS ...... 34 TABlE 27 CEREAlS PROJECTIONS ...... 39 TABlE 28 SUGAR BEETS PROJECTIONS ...... 40 TABlE 29 WHITE SUGAR PROJECTIONS ...... 40 TABlE 30 MilK PROJECTIONS ...... 40 TABlE 31 BEEF PROJECTIONS ...... 41 TABlE 3 2 PIG MEAT PROJECTIONS ...... 41 TABlE 33 POUlTRY MEAT PROJECTIONS ...... 42

CEC Reports · Lithuania > 3 List of graphs

GRAPH 1 PRICE INDEX OF AGRICULTURAL INPUTS AND OUTPUT...... 15 GRAPH 2 AGRICULTURAL PRODUCTION INDEX 1986-1996 ...... 16 GRAPH 3 lAND USE ...... •...... 17 GRAPH 4 EVOLUTION OF LIVESTOCK NUMBER ...... 21 GRAPH 5 AGRICULTURAL POLICY EXPENDITURE REAllOCATION IN 1997 ...... 30

4 c CEC Reports - Lithuania Introd ucti on

In 1995 DG VI published a series of ten country The accession process was officially launched on 30 reports and a summary report on the agricultural sit­ March 1998 with the submission to the applicant uation and prospects in the associated countries of countries of the Accession Partnerships, which for Central and Eastern Europe (CECs). The reports each country set out the principles, priorities, inter­ provided an analysis of the transition agriculture and mediate objectives and conditions leading up to the agro-food sector in these countries were going accession. A main priority is adoption of the through in the first half of the nineties and an assess­ "acquis", the body of Community legislation, ment of the outlook for the main agricultural com­ including for agriculture the sensitive areas of vet­ modity markets till the year 2000. erinary and phytosanitary legislation.

With three years more of information the current As was the case in 1995 the individual country publications, which cover Bulgaria, the Czech reports have been prepared by the services of the Republic, Estonia, Hungary, Latvia, Lithuania, Commission in close collaboration with national Poland, Romania, Slovakia and Slovenia, provide an experts of the countries concerned and with the help update of the 1995 reports and take the outlook hori­ of scientific advisers. zon till 2003. The underlying working hypothesis for the reports is that the first CECs will join the Union The country reports and the summary report attempt and will start to be integrated in to the single market to provide an objective analysis of the current situa­ and the Common Agricultural Policy after 2003. tion in agriculture and the agro-food sector and an assessment of where the candidate countries can be expected to be in their agricultural development by the time of the next enlargement.

CEC Reports - Lithuania > 5 About the data ...

The data used in the country reports are derived Despite all efforts to create a coherent, reliable and from a CEC dataset established by DG VI in coop­ up to date dataset, all figures presented in the coun­ eration with other services of the European Com­ try reports should be interpreted with care. Signifi­ mission and with external experts. Data originate cant changes in data collection and processing meth­ from various sources, mainly national statistics and ods have sometimes led to major breaks in historical economics institutes, FAO, OECD, and the Euro­ series as the countries concerned have moved from pean Commission (DG II, EUROSTAT). centrally planned to market economies. One general impression is that these problems may have led to For agriculture in general the FAO data were used, overestimate the decline in economic activity in gen­ but for certain countries and/or for certain products, eral and of agricultural production in particular in and in particular for the most recent years, the fig­ the first years of transition, data from 1989 and ures were adjusted or replaced by data from other before being somewhat inflated and data after 1989 sources, after discussion with country specialists. underrecording the increase in private sector activi­ For the commodity supply balance sheets a simpler ty. More recently many CECs have undertaken seri­ approach than by the FAO was used, taking into ous efforts to start to harmonise data collection and account trade in agricultural commodities up to the processing methods with EU practices. first processing stage, but not in further processed products. With three more years of data and experience the original 1995 dataset has been improved and further The main objective was to obtain a dataset which adapted to DG VI's analytical needs. was as coherent as possible, offering a good compa­ rability of data.

6 < CEC Reports - Lithuania Executive Summary

The Lithuanian economy Agriculture in the overall economy

The transition from a planned to a market economy In the pre-reform period, agriculture and food pro­ provoked a steep decline in the overall economy dur­ duction were the second largest sectors of the ing the first year of independence. The economic Lithuanian economy, accounting for almost 28% of recovery started in 1994 and continued with a real GOP in 1990. This share fell dramatically during the GOP growth of 3,0% in 1995, 4,2% in 1996, approx. transition period and was down to 6, 7 % in 1994. In 5, 7% in 1997 and a similar trend is expected for the 1995, the share increased to 8,5% and in 1996 coming years. reached 10,4%. According to preliminary data, no relevant changes were recorded in 1997. The adoption of a currency board in 1994 and the implementation of successive IMF programmes cre­ The agricultural share of total employment, contin­ ated a policy environment conducive to the stabili­ ued to increase from the 18% of 1990 to 24,0% in sation of the economy. During 1997, the average 1996, thus agriculture has acted as an important inflation rate was almost halved in comparison to employment buffer during the transition period. 1996. These favourable developments have contin­ ued during the first quarter of 1998. In 1997 the neg­ ative trend in fiscal revenues, which had charac­ Agricultural economy terised Lithuanian budgetary developments since independence, was reversed and the budget deficit The loss of markets in the former Soviet Union, the fell both in absolute terms and in terms of GOP fall in domestic consumption and the adjustment to share. the new economic environment, not to mention the complex process of land reform, all combined to The balance of payments data probably overesti­ cause Lithuanian agricultural production to shrink mates the current account deficit, mainly because of by 50% during the transition period. difficulties recording transit trade. Moreover, rising external imbalances have been easily financed with In 1995, however, the decline in production was improving conditions. Sustainable balance of pay­ reversed, and the upward trend in agricultural output ments trends are a necessary condition for the suc­ continued in 1996, when GAO increased by 10,3%. cessful implementation of Lithuania's intention to Such a significant growth in agricultural output has abandon the currency board system. However, the to be solely attributed to the good improvement in unpegging of the Litas from the dollar will not take crop production (21,8%). Livestock sector output place until 1999. continued to decline slightly (-2,8%) mainly due to meat production decline.

The gap between agricultural input and output prices widened sharply between 1992 and 1994, but narrowed in 1995 and 1996 when the rise in input prices slowed because of falling inflation while out­ put prices increased as a result of further deregula­ tion of the agricultural sector.

CEC Reports - Lithuania > 7

(2) Agricultural and rural society Beef - The production of beef meat can be seen mainly as a by-product of milk production. The Lithuania is roughly the size of Ireland. Of the 6,5 average weight of slaughtered animals recovered million hectares ofland, the total agricultural area in over recent years, and is now set at around 300 kg. 1997 equalled 3.151 million hectares (2,5% ofEU- On the other hand, production is still declining 15). Arable land, accounted for 2.866 millions fol­ because of the drop in livestock number and slaugh­ lowed by meadows and natural pastures (0,441 mil­ ters. lion hectares) and permanent crops (44.300 hectares). Pig meat - Since the disruption of the Soviet system the performance of the pig sector has declined. The Cereals- The area planted to cereals covered about reduction in production between 1992 and 1996 was 50% of the total agricultural land. The supply bal­ around 40% following the decrease in domestic util­ ance for the cereals aggregate shows a decline both isation. Self-sufficiency remained stable at around in the harvested area and production between 1992 100%. and 1995 but a strong recovery in 1996 e 1997, mainly due to the improvement in yield. Consump­ Poultt:v meat - Poultry production suffered the same tion is still relatively high as a consequence of the problems of feed shortage, which affected the other declining real income which led to a shift in con­ sectors. However, after a steep decline in 1993, pro­ sumption from higher price meat and dairy products duction began to recover. Consumption has also to lower cost cereal products. been increasing since 1994. In 1996 consumption exceeded production and for the first time, after Sugar beet and Sugar - After a decline in 1994 and being a traditional exporter to the Soviet market for 1995, the area planted to sugar beet started to recov- so long, Lithuania become a net-importer. er and in 1997 reached 35.000 hectares. Yield also increased and in 1997 production was more than 1 million tons. Production of sugar is from both Forestry sugar beet domestically grown and sugar cane imported. Self-sufficiency for sugar in Lithuania has Forests in Lithuania occupy almost 1/3 of the terri- always exceeded 100%, with the sole exception of tory. Forestry and the forest industry holds consider- 1994. able importance for the economy of Lithuania. The country's export of wood and wood products Livestock- The end of the Soviet Union has funda­ amounts to 10% of total export value. The forest mentally changed the system oflivestock production sector also plays significant social role, especially in in Lithuania. Livestock numbers have declined by rural areas. About 12% of the territory in Lithuania about 50% since 1991, with the exception of dairy is under protection as Parks. cows, which only declined by about 30%.

Milk - The structure of the cow herd has changed Agricultural trade dramatically as many of the large dairy herds in agricultural companies did not survive, and produc­ Imports of food products have been growing rapid­ tion is now dispersed in small farms. The production ly. These are mainly high value-added products. and consumption levels in the sector are stabilising, Livestock products in general, and meat and milk and since 1994 production of milk doubled domes- products in particular, are still the largest compo­ tic demand. nents of agri-food exports. The balance of trade in agricultural and food products became negative in

8 < CEC RVilnius and Kaunas. Lithuania has a well are consistent with the appreciation of the Lita rela­ developed network of highways and secondary tive to European currencies and the depreciation rel­ roads, but some of the basic services, such as water ative to NIS currencies. The principal source of supply, and telecommunications, still remain under­ imports over the last three years has been Europe, developed in rural areas. and this increased from 53% in 1993 to around 65% in each of the last three years. The second important The agricultural reform created many serious prob­ source has been the NIS, but this share has declined lems in rural areas. During the Soviet period, the from 39% in 1993 to around 21% in the last three main social, medical and cultural services were pro­ years. A close third and gaining in import share are vided in special facilities on collective farms. With the other CECs, which are now close to 15%. Both the farms restructuring, these functions were trans­ imports and exports include a substantial quantity of ferred to local government, and many services goods re-exported from East to West and West to ceased to be available. East.

Agriculture and the environment Farm structures and privatisation Until a few years ago very little attention was paid in Land restitution and privatisation of State and Col­ Lithuania to environmental issues and large areas lective farms and farm assets were initiated at the suffered from agricultural pollution originated from same time in 1991 and encouraged the development poor handling of animal waste. Excessive use and of family farms. As of mid-1997, the restitution misuse of chemicals in the past have also given rise process had only resulted in ownership of less than to environmental problems. Other environmental 50% of agricultural land. Privatisation also has a concerns are related to soil erosion, which cover direct impact on the development of the land market, almost 20% of agricultural land in Lithuania. since only registered land can be sold.

Currently three different types of organisations char­ Up- and downstream activities acterise the farming structure. Agricultural Compa­ nies, which are large farming enterprises created as During the Soviet period Lithuania imported all a result of the transformation of the collective farms. agricultural machinery and equipment from the for­ Family farms, and household plots. According to mer Soviet Union. At present private firms prevail in data available on 1997, less than 2000 of these large­ the among producers and traders. scale farms survived with an average size of about 370 hectares, while the number of family farms has The situation in Lithuania's food processing reflects increased to about 200 thousand. These changes the structure which emerged in the Soviet period and have been accompanied by changes in land use and consisted of large medium-size state-owned concen­ production pattern. trated enterprises mainly oriented towards dairy and meat processing. The major problems are over­ The "organisational infrastructure" of agriculture is capacity and lack of capital. Many of the processing not well developed in Lithuania. Until now four facilities are obsolete, with low hygienic standards. major organisations have emerged. Privatisation failed to give the necessary incentive

CEC Report.\· - Lithuania > 9 for the restructuring and in many cases it was more Trade policy developed from the implementation of appropriate economically to construct a new enter­ quantitative restrictions, including export bans and prise rather than to restructure an old one. licensing, towards more open trade regulations. External pressures to establish consistent and trans­ The privatisation of industry and trade, as in other parent trade policies led to the elimination of non­ Central European countries, was one of the major tariff barriers and a switch to the use of mostly ad initial objectives of Lithuanian economic reform. valorem tariffs. Import tariffs range from 20 to 30 However, the agri-processing sector has proved percent for most agricultural and food products, harder to privatise than other industries. except for sugar. External constraints on trade poli­ cy decisions included IMF (which had expired in At present, both the downstream and the processing September 1997) and World Bank Memoranda and sectors are only relatively open to foreign investors. the need to keep policies consistent with WTO stan­ The activities in this field are regulated by the Law dards in anticipation of Lithuania's WTO accession. on Foreign Capital Investments adopted in June Bilateral and multilateral agreements were signed to 1995. influence this process or are in preparation.

AGRICULTURAL AND RURAL POLICIES Structural Policy

The main instruments of agricultural policy can be Support to Investment- The main supports to invest­ divided into two groups according to their primary ment lie in the Banking and credit system including objectives. The first group consists of price and a 30 million$ (about 26,7 million ECU) World Bank income support measures. The second group credit line to the Rural Support Fund and to the Par­ includes structural measures and measures that tial Loan Guarantee Fund set up in December 1997, improve the production base. In order to ensure a which became operational at the beginning of 1998. more efficient use of the state aid to the agricultural sector all the financial resources are now adminis­ Taxation- Following the introduction ofVAT in May trated by the Rural Support Fund, which, in 1997, 1994, agricultural producers were given special accounted for 5,8% of the State Budget. privileges. Up to January 1997, domestica11y produced agricultural and food products were sub­ ject to a temporary rate of 9% instead of the general Market prices and subsidies 18% rate. Currently the VAT preferential rate has been discontinued although farmers still benefit Since the beginning of the economic reforms in from a preferential profit tax. Lithuania, the pricing system has been radically altered. In 1995 the government launched a new Rural Development Policy- Rural development poli­ market intervention programme to supports farm cies are at relatively early stages of development in incomes with Minimum Marginal Purchase Price Lithuania. However despite the severe budgetary (MMPP) for specified quantities of farm products. constrains, some progress has been made in differ­ At the beginning of 1997, MMPPs were eliminated ent areas. The Farmers Support Fund allocated or reduced and direct payments targeted to higher between 1992 and 1995 ECU 16 million for infra­ quality products. structure assistance. In 1997 a targeted program, was designed to improve the living standard of the farming population and increase employment in the rural areas.

10 c CEC Reports - Lithuania Agri-environmental Policy- A pilot program of envi­ LONG TERM OUROOK ronmental fanning started in 1993. In 1996 about 0,6 million ECU, was provided by the State budget The macroeconomic hypothesis, underlying the out­ for agriculture and spending is expected to increase look for agricultural products, is that the positive to 0,9 million ECU in 1997. trends of Lithuanian economy will stabilise as a result of further structural reforms.

Under these assumptions a modest growth in cereals output could be expected, whereas for sugar and milk they imply a potential exportable surplus. Lithuania should remain around a level of complete self-sufficiency for beef, and confirm its position as a net importer for pig meat and poultry.

CEC Reports - Lithuania > 11 1 . General economic situation

will continue to pursue the reform agenda. The next 1. 1. The Lithuanian economy national elections will be held in November 2000 (legislative) and 2002 (presidential).

1. 1. 1. Political Background 1.1.2. Macro-economic indicators In the inter-war period, Lithuania was an indepen­ dent State, and highly integrated in the world econ­ The transition from a planned to a market economy, omy. The country was forcibly annexed to the Sovi­ with the end of the close input and output relations et Union in 1940. Because of its comparatively good with the Soviet Union, provoked a steep decline in infrastructure and skilled labour force, relatively the overall economy during the first year of inde­ large and sophisticated industries were established pendence. The contraction of real GDP between in Lithuania. Agriculture and food processing in 1990 and 1993 was about 60 percent. The economic particular were traditionally important sectors. After recovery started in 1994 and continued with a real restoring independence, in March 1990 and the elec­ GDP growth of 3,0% in 1995, 4,2% in 1996, approx. tions in 1993 of the first freely elected president Mr. 5, 7% in 1997 and a similar trend is expected for the A. Brazauskas, Lithuania launched a major program coming years. of economic reforms for market liberalisation. In early 1996, the government suffered a political crisis In spite of the initial disruption of economic activi­ triggered by accusations regarding the behaviour of ty, total unemployment remained relatively low Prime Minister Slezeviscius during the banking cri­ because of several factors, including a dramatic fall sis of 1995. The Conservative Party Homeland in the labour market participation rate. Lately, how­ Union won the new legislative election and Mr. G. ever, unemployment has been on the rise, in spite of Vagnorius became Prime Minister. The new Govern­ the acceleration in GDP growth. This reinforces the ment relaunched the reform effort through the pri­ need for continuing industrial restructuring. vatisation of state-owned banks and large enterpris­ es, the acceleration of structural changes in key sec­ Comparing GDP per capita on the basis of Purchas­ tors (such as energy and agriculture) and the intro­ ing Power Parities, in 1996 Lithuania reached a PPP duction of legal and institutional reforms. At the per capita of 4034 ECU, which is 22,2% of the EU moment, the acceleration of structural reforms and average. the elimination of the most severe imbalances in energy, agriculture, and social insurance, are in the Inflation surged early on in the transition phase due forefront of macro-economic policy. In January to the rapid price liberalisation, the terms-of-trade 1998 Mr V Adamkus was elected president. The shock and the fact that the currency remained election of Mr. V Adamkus, who has lived in pegged for too long to the sharply depreciating America for most of his life as a senior administra­ Russian rouble. tor with the US Environmental Protection Agency demonstrates the importance Lithuanians attach to The adoption of a currency board in April 1994 and positive relations with the West. In March 1998 the implementation of successive IMF programmes Mr V Adamkus approved the new cabinet of the created a policy environment conducive to the sta­ Conservative- Christian Democrat coalition, pro­ bilisation of the economy. During 1997, the average posed by Prime Minister Mr. G. Vagnorius which inflation rate was almost halved in comparison to

12 < CEC Reports- Litlrucu11a ,1 ,

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LITHUANIA Main economic data (l)

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SOURCE: Attribute data: EC DGll and DGVl.Al Geographic data: EUROSTAT-GISCO

CARTOGRAPHY: EC-GISV| - 05/98 )t , t a t 4

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CARTOGRAPHY: EC-G|SV| - 0s198 1996. These favourable developments have contin­ fact, a temporary deterioration of the external ued during the first quarter of 1998 when year-on­ accounts is to be expected during the process of year consumer price inflation fell by roughly two transition when domestic savings are not sufficient percentage points to 6,6%. Fiscal consolidation also to finance the investments required by economic advanced during 1997. The negative trend in fiscal restructuring. revenues, which had characterised Lithuanian bud­ getary developments since independence, was The balance of payments data probably overesti­ reversed and the budget deficit fell both in absolute mates the current account deficit, mainly because of terms and in terms ofGDP share. difficulties recording transit trade. Moreover, rising external imbalances have been easily financed with Lithuanian external accounts worsened sharply fol­ improving conditions. In 1997 net foreign direct lowing its secession from the Soviet Union, which investment flows more than doubled compared to accounted for 95% of its exports. In 1994, the exter­ 1996 and official reserves continued to increase, nal imbalances improved, aided by the sharp under­ reaching 4,6 billion litas in March 1998. The full evaluation of the exchange rate at the time of the implementation of the authorities' privatisation plan introduction of the currency board. A sharp deterio­ would probably lead to a further rise in foreign cap­ ration of the external accounts in percentage of GDP ital inflows. took place in 1995, and the situation worsened again in 1997. Despite export growth of some 15% over Sustainable balance of payments trends are a neces­ the year, imports actually grew by almost 24% caus­ sary condition for the successful implementation of ing the trade deficit to deteriorate (Table 1). Lithuania's intention to abandon the currency board system established in 1994. So far, the central bank The current account deficit increased by more than has followed an orderly exit strategy. The actual one third and amounted to an estimated 10,3% of unpegging of the litas from the dollar will not take GDP. This trend, however, must be analysed with place until 1999. The sounder Lithuania's external caution. There are no indications that the deteriora­ position, the smaller the economic uncertainty these tion of the external accounts is due to a significant measures will generate. real appreciation of the exchange rate. As a matter of

Table 1 Macro econo•lc Indicators 1990 1991 1992 1993 1994 1995 1996 1997*

GOP (real terms) %Change -3,3 -13,1 -34,0 -30,4 1,0 3,3 4,7 5,7 GOP per heads OOOECU 0,3 0,5 0,9 1,2 1,7 2,2 PPS per head %EUavg. 21,1 20,9 21,6 22,2 Inflation (CPI-end of the year) % 9,1 382,7 1162,5 188,6 45,1 35,5 13,1 8,4 Unemployment o/o Labor force 0,3 1,3 4,4 3,8 6,1 7,1 6,7 Budget balance %GOP 0,6 2,8 1,5 1,1 -1,8 -1,8 -2,5 -1,3 Trade Balance %GOP -6,0 -4,7 -11,6 -11,4 -12,0 Current Account %GOP -3,3 -2,1 -10,2 -9,2 -10,3 Population million 3,7 3,7 3,7 3,8 3,8 3,7 3,7 3,7 Exchange rate Lita/$ 16 110 170 4,24 3,97 4 4 4 Exchange rate Lita/ECU 20,3 136 220 5,0 4,7 5,2 5,1 4,5 Exchange rate ECUIUS$ 0,79 0,81 0,77 0,85 0,84 0,77 0,79 0,89 • Preliminary

CEC Reports - Lithuania > 13 1.2. Agriculture in the overall To some extent, the increase in employment in the economy agriculture sector reflects the nature of land restitu­ tion in Lithuania and the lack of alternative employ­ In the pre-reform period agriculture and food pro­ ment opportunities during this period. The high duction were the second largest sectors of the share of agriculture in total employment can also be Lithuanian economy, accounting for almost 28% of explained by the fact that it includes all types of GDP in 1990. However, after declining to 19% in farms (full time, part time, subsidiary). 1991, its share fell dramatically during the transition period and was down to 6,7% in 1994. In 1995, the share increased to 8,5% and in 1996 reached 10,4% 1.3. Agricultural economy for agriculture, 1,0% for forestry and 0,05% for fisheries. According to preliminary data, no relevant Between 1991 and 1996, agricultural incomes suf­ changes were recorded in 1997. These statistics fered from a severe price-cost squeeze. This probably over-state the fall in the relative size of the occurred because prices, especially energy, were lib­ agri-food sector, since a large part of the reported eralised at an early stage in the reform process, decline is attributable to the revised methodology while at this stage food prices remained subject to adopted for calculating national accounts from 1992 government regulation. The gap between agricultur­ onwards. al input and output prices widened sharply between 1992 and 1994, but narrowed in 1995 and 1996 Trade in agricultural commodities and the food when the rise in input prices slowed because of industry also plays an important role in total trade. falling inflation while output prices increased as a Imports share was 13,4% in 1995, and 13,1% in result of further deregulation of the agricultural sec­ 1996, while export share in the same years was tor (Graph 1). 18,3% and 17,1% respectively (Table 2). During the transition period consumers were affect­ Finally, the agricultural share of total employment, ed by the loss of massive consumer subsidies at the continued to increase from the 18% of 1990 to same time that real incomes were falling. This 24,0% in 1996, thus agriculture has acted as an resulted in a sharp increase in the proportion of important employment buffer during the transition household income spent on food which almost period. doubled to 61 ,5% between 1990 and 1993. In more recent years, with the slowdown in food price increases in 1994/96 and some growth in real incomes, this expenditure share fell back slightly to 57,4% in 1995, and to 56,6% in 1996, and fell fur­ ther to 52,2% in 1997.

Table 2 Role of Agriculture In the economy 1990 1991 1992 1993 1994 199S 1996 Share in GDP (old methodology) 27,6 19,2 21,0 (new methodology) - 11,5 10,4 6,7 8,5 10,4 Share in Employment 18,0 17,5 18,7 21,9 22,5 22,9 24,0 Share in Trade Imports 6,2 5,2 11,5 4,2 11,6 13,4 13,1 Exports 16,6 30,7 19,7 12,2 19,9 18,3 17,1

14 c CEC Reports - Lithuanra Groph I Prite index of ogriculturol inputs ond output lndex of Prices (1991=100) 20000 18000 ---

At the same time, in parallel with the lower real the drop in food consumption, was change in con- income, there was a shift in consumption from high- sumer expenditure structure: food expenditure must er price meat and dairy products to lower cost cere- compete with non-food expenditure (housing, trans- al products, potatoes and field vegetables. As a port, energy, etc.) which is growing rapidly as gov- result, from 1990 to 1995, meat and dairy, eggs, ernment subsidies are removed. fish, and sugar consumption per capita declined by 45% to 50%, while the consumption of cereal prod- The loss of markets in the former Soviet Union, the ucts increased by 26%.In 1996 as in earlier years, fall in domestic consumption and the adjustment to there was a slight increase in consumption per capita the new economic environment. not to mention the of bread and grain products, potatoes and vegeta- complex process of land reform, all combined to bles. cause Lithuanian agricultural production to shrink by 50% during the transition period (Table 3). Consumption of fruit and berries, vegetable oils and margarine, fish and sugar recovered slightly from The worst hit activity was livestock production, several years of decline. However, the consumption which declined by over 50%, while crop production of livestock and dairy products (meat, milk and fell by more than 40%. Part of the fall in crop pro- eggs) continue to decline, but at a much lower rate. duction during the transition years was due to arable A significant factor, which contributed strongly to land being taken out of production due to unclear

Ioble 3 Food (onsunption

1990 1991 1992 1993 1994 1995 1996 1997* Share of household expenditure on food 33,9% 38,3% 59,7% 61,50/o 57,3% 57,40 56,6% 52,2% Per capita consumption (Kg) Meat prod. (in meat equiv. Unit) 89 66 64 56 50 52 5l sl Milk prod. (in milk equiv. Unit) 480 3r5 334 319 29t 238 213 222 Cereals prod. (in grain equiv. Unit) 108 138 t42 r22 135 136 142 145 Potatoes 146 r28 95 122 99 r27 133 Fish and fish prod. t9 19 l1 8 10 l0 ll Vegetable oils, margarine 73 47 l0 12 13 13 Fruit andVegetable n2 134 95 119 ll0 113 t23 r24 Sugar 43 3l 23 25 23 22 24 24 rPreliminary

CEC Reports - Lithuania > l5 ownership titles and the lack of a functioning land uation for many producers was further complicated market. by food processors delaying payment for products purchased from farmers, or not paying at all. In In 1995, however, the decline in production was 1994, new legislation was introduced imposing reversed, and output increased by 6,10/o, despite the financial penalties on processors who do not make substantial increase in area of uncultivated arable payment for agricultural products within a specified land due to the lack of credit to purchase essential time period. This resulted in a substantial reduction inputs (Graph 2). in the level of outstanding debts to agricultural pro- ducers in 1995. Seeking to further reduce payment The upward trend in agricultural output continued in in the sector, in 1997 the Government adopted 1996, when GAO increased by 10,3%. Such a sig- stricterregulationsimposingpenaltiesonprocessing nificant growth in agricultural output has to be sole- enterprises and modifuing bankruptcy procedures. ly attributed to the good improvement in crop pro- duction (21,8%). Livestock sector output continued to decline slightly (-2,8%) mainly due to meat pro- duction decline (Table 4).

The level of debt in the agricultural sector increased during the transition period because of low output prices, high interest rates and a general lack of demand for agricultural products. The financial sit-

Groph 2 Agriculturol produttion index l9E6'1996 120 100 / 80 H 60 V 40 20

0 - 1989 1990 1991 1992 1993 1994 1995 1996 +GAO 100 91 86 66 62 50 53 58 --r-Crops 100 82 84 56 71 51 59 72 Livestock 100 96 U 72 53 47 45 44

Toble 4 Gross Agriculturol Outpul | 990'96 1990 l99r 1992 1993 1994 1995 1996 Structure % Crops 37,5 47,5 56,9 47,1 54 53,4 54,6 Livestock 62,5 52,5 43,I 52,9 46 46,6 45,4 Change (at 1993 prices) -9,0 -5,8 -23,4 -5,5 '20,2 6,1 10,3 Crops -17,7 2,6 -33,5 26 -28 16'1 21,8 Livestock -4,5 -12 '14,5 '26,9 -11,2 -2,7 -2,8

16 < CEC Reports - Lithuania 1'*

J- JS. 't ,: cct94959697$ shore l#puy'"nt Gross Agriculturol Output "r ";ftJit,l'i

LITHUANIA Agricultural statistics

/V Main rivers and watenruays ect94s O major town Shore of oUlful rol forestry (> 250000 inhabitants) ffi Estimate or forecast .b SOURCE: Attribute data: EC DGll and DGVl.Al Geographic data: EUROSTAT-GISCO {'t EC-G|SV| - CARTOGRAPHY: 05/98 ^t 2. Agriculturol ond rurol society

2.1. lond Use Table 5 Shore of produclion in privote forns ond hougeholds

Harvest of main agricultural crops 1992 1994 t996 Lithuania is roughly the size of lreland. Of the 6,5 mil- Grain 37% 600/o 69% area in Jan- lion hectares of land, the total agricultural Flax fibre 460/o 45o/o 49% uary 1997 equalled 3.151 million hectares (2,5% of Sugar beet (for industry) 30% 50% 630/o EU-15). Arable land, the most important sector, Potatoes 9Io/o 98% 99o/o grilsses accounted for 2.866 millions followed by meadows and Hay from and meadorvs 670/o 78% 89% Silage crops 3% 2o/o 5% natural pastures (0,441 million hectares) and perma- Fodder roots 78o/o 87o/o 94o/o nent crops (44.300 hectares) (Graph 3 - Table 5). Livestock numben 1993* 1995* 1997+ Cattle 4lo/o ss% 66% The most recent update on the distribution of land Of which are Cows s8% 72o/o 8l% by users shows the continuous increase in area of Pigs 39% 45o/o 52o/o privately-owned land and the decrease in area of Poultry 30o/o 30% 37o/o Beehives 85o/o 93% land utilised by agricultural partnerships and enter- 90% r As ofJanuary I prises.

The share of land used by agricultural companies With the re-establishment of private farming, a share declined from around50% in 1993 to less than20% of production of most major crops and livestock in 1997, while that of family farms and household shifted from large-scale farms to smaller farms. plots increased during the same period from 44Yo to Some products in the livestock sector, like pigs and 67%. The production patterns also reflect these poultry, have a lower share of the crop sector due to developments. In the pre-reform period, most cere- the fact that farm assets such as machinery and ani- als, meat and sugar beet were produced in collective mals have not been returned to the farmers with the farms, while household plots produced most pota- land. toes and a significant share of milk.

Groph 3 Lond ure

48% of Total Land: Agricultural land t(Irr t1 Agnnr* ps8tctdths end enbOdsol Meadows and Perma[eot cna pasfirres crops l% tlna E Landownso t3% 7g?,. dlr El llqlgoholdfirmr

s(Ita E Ootcrffislcgsl N* pqlont arr E ltc acnnisd orleeced n* land 10* $ebtuEry fr n tr Oor6rr

CEC Reports - Lithuania > 17

(4) 2.2. Agricultural production and consumption

2.2.1. Cereals

The area planted to cereals covered about 50% of the Table 6 Cereals Balance sheet total agricultural land. The supply balance for the 1992 1993 1994 1995 1996 1997 cereals aggregate shows a decline both in the har- Harv.Arca OOOha 1134 1267 1195 1026 1079 1162 vested area and production between 1992 and 1995 Yield t/ha 1,94 2,11 1,76 1,86 2,42 2,63 but a strong recovery in 1996 and 1997, mainly due Production OOOt 2197 2673 2098 1907 2615 3052 to the improvement in yield (Table 6). Availability OOOt 2333 2502 2410 2281 2689 2746 Food OOOt 534 458 505 506 526 537 Feed OOOt 1175 1435 1323 1211 1621 1685 Consumption is still relatively high as a conse- Seed OOOt 239 252 211 213 217 224 quence of declining real income which led to a shift Food per capita Kg. 142 122 135 136 142 145 in consumption from higher price meat and dairy Self Sufficiency % 94% 107% 87% 84% 97% 111% products to lower cost cereal products. Since the decline in the livestock sector was more pronounced than was expected, in 1993 Lithuania produced more cereals than it needed (Table 7). Table 7 Main cereals production The trend reflected in the aggregate of cereals was Area (OOOba) 1991 1992 1993 1994 1995 1996 1997* Wheat 272 284 376 270 261 348 376 mainly led by the drop in the barley yield which Rye 138 164 231 204 135 152 159 declined from 2,9 tons per hectares in 1990 to 1,6 in Barley 523 611 588 620 545 474 503 1995, and only in 1996 increased up to 2,5 tons. Oats 81 62 43 55 47 52 56 Produetion(000t)1991 1992 1993 1994 1995 1996 1997 Among cereals, barley represented in 1996 approx. Wheat 855 834 891 549 637 936 1127 45% of production and 44% of area. On the other Rye 345 342 434 313 239 287 348 hand wheat represented 36% and 32% respectively. Barley 1699 955 1208 1091 892 1177 1194 In the previous years the production structure of the Oats 233 51 78 69 67 102 112 most important crops changed following dramatic Yield (tonslba) 1991 1992 1993 1994 1995 1996 1997 Wheat 3,1 2,9 2,4 2,0 2,4 2,7 3,0 changes in the agricultural sector (Table 8). Rye 2,5 2,1 1,9 1,5 1,8 1,9 2,2 Barley 3,2 1,6 2,1 1,8 1,6 2,5 2,4 Oats 2,9 0,8 1,8 1,3 1,4 2,0 2,0 * Preliminary

Table 8 Percentage structure of cereals production PRODUCTION AREA % Structure1991 1992 1993 1994 1995 1996 1997* 1991 1992 1993 1994 1995 1996 1997* Wheat 21'/o 38% 33% 26% 33% 36% 38% 27% 25% 30% 23% 25% 32% 32% Rye 11% 16% 16% 15% 13% 11% 12% 13% 14% 18% 11'/o 13% 14% 14% Barley 54% 43% 45% 52% 47% 45% 41% 51% 54% 46"/o 52% 53% 44% 43% Oats 7% 2% 3% 3% 3% 4% 4% 8% S% 3% 5% 5% 5% 5% * Preliminary

18 < CEC Reports- Lithuania 2.2.2. Fodder crops 2.2.5. Sugar beet and Sugar

Products include mainly green fodder from arable After a decline between 1994 and 1995, the area land. The total production of fodder crops in 1990 planted to sugar beet started to recover and in 1997 was double cereal production, but decreased to 2,8 reached 35 thousand hectares. million tons in 1996. The area planted was around 1,6 million hectares in 1990 and after dropping until Yield also increased so that the level of production in 1994 seems now to have stabilised at around I mil- 1997 was more than 1000 thousand tons {Table 12). lion hectares. The drop in the yield and the declining quality of forage was also reflected in deteriorating conversion rates in the livestock sector. Ta.le 9 Potatoes ••lance shHt 199% 1993 1994 1995 1996 1997 2.2.3. Potatoes balance Area OOOh 114 122 U7 125 125 121 Yield tlha 9,5 14,5 9,4 12,8 16,3 15,1 Potatoes harvested represent around 4% of arable Production OOOt 1079 1773 1096 1594 2044 1830 crops. With the exception of 1994, production has Availability OOOt 998 1302 1268 1570 1922 steadily increased mainly because of the increase of Feed OOOt 300 518 516 741 1101 Seed OOOt 341 322 357 328 yield (Table 9). 327 Food per capita Kg. 95 122 99 127 133 Self Sufficiency % 92 73% 116% 98% 94% Human consumption has been also growing but the main part of the increase in potato availability has been destined for animal feed, which in 1996 repre- sen ted more than 50% of utilization. Ta.le 10 Rapeseecls ••lance sheet 1992 1993 1994 1995 1996 1997 Area OOOh 5,2 2,0 12,0 13,9 11,8 22,1 2.2.4. Oilseeds and Protein Crops Yield tlha 1,5 1,6 1,1 1,4 1,9 1,7 Production OOOt 7,6 3,1 13,2 18,9 22,6 37,2 For climatic reasons, oilseed production in Lithua- nia consists exclusively of rapeseed. In the last five years production has continued to increase, despite a low yield, and in 1997 reached a level that was four Ta.le 11 Peas ancl Beans bala•ce sheet times higher the 1992level (Table 10). 1992 1993 1994 1995 1996 1997 Area OOOh 30,6 20,5 23,4 26,3 36,7 52,3 The utilisation for processing into vegetable oils for Yield tlha 0,9 1,7 1,7 1,8 2,4 2,0 human consumption has always represented around Production OOOt 27,5 35,3 39,6 47,5 87,4 106,4 90% of rapeseeds available. On the other hand, the seed use remained constant while the use for protein feed for the livestock sector increased with time and reached the level of 10% in 1996 {Table 11). Table 12 Sugar beets balance sheet Sugar beets 1992 1993 1994 1995 1996 1997 Protein crops in Lithuania consist of peas and beans. Area OOOha 33 35 27 24 31 35 Production has been continuously growing since Yield tlha 19 25 17 28 25 29 1992, because of both the increase in the harvested Production OOOt 622 855 462 692 795 1015 area and the improvement in yield.

CEC Reports - Lithuania > 19 The content in terms of white sugar is low, between 2.2.6. Fruit and Vegetables 11 and 12%, and the production of at least two out of the four factories operating in the country, which Production and consumption of fruit and vegetables still have to be privatized, is quite inefficient. play a very limited role in Lithuania but this has increased in more recent years. The sugar sector has always been one of the most protected in Lithuanian agriculture. The sugar Most of the fruit (approx. 80%) is represented by import tariff was negotiated in February 1997 at apples followed by plums. Also because the climate 87%, which drops to 70% for exports from the EU and soil Lithuania produces excellent berries under the FTA (Free Trade Agreement). (Table 14).

Production of sugar is from both sugar beet domes­ The high level of consumption per capita can be tically grown and sugar cane imported under Tariff explained by an increase in human utilisation, which Rate Quotas. As a consequence, self-sufficiency for includes processed products. sugar in Lithuania has always exceeded 100%, with the sole exception of 1994 (Table 13). For vegetables, red beets, carrots and cabbages are favoured and usually produced in small household plots with the double function of improving family nutrition and providing additional income.

An increasing share of these products is now mar­ keted by local markets, and one of the reason for this is that the quality is generally low and they can not Tule 14 Fruit •II lerrles .....,. ''"' be marketed elsewhere. Packaging problems, quali­ 1992 1993 1994 1995 1996 1997 ty guarantees, and off-season market supply, limit Area OOOha 42,6 38,4 38,8 38,6 38,5 43,8 for the moment the expansion of the processing sec­ Yield tlha 2,8 6,9 1,4 3,3 2,5 6,0 Production OOOt 118 264 S3 128 98 258 tor. However, a large share of consumption per capi­ Consumption p.c. Kg. 30 so 45 48 52 ta relates to the consumption of canned products (Table 15).

20 c CEC Reports - Lithuania 2,2.7. livestock production of milk and milk products doubled domestic demand. Traditionally, Lithuania exported The end of the Soviet Union has fundamentally around 50% of its butter, 25% of its cheese and40% changed the system of livestock production in of its milk powder. Up to the end of 1997 exports Lithuania. as in other Baltic countries. have been marketed to the former Soviet Union since quality standards did not meet European The livestock sector used to dominate the agricul- requirements (Table 16). tural economy, with a level of production which exceeded domestic demand. The oversupply was sold on Russian markets, while a large amount of cereals for feed use were imported from other Soviet Republics. Toble | 5 Vegetobles bolonce rheet

1992 1993 t994 1995 1996 1997 The leadership of the livestock sector in the Lithuan- fuea 000ha 19,8 25,0 27,5 25,8 29,4 26,8 ian agricultural economy continued until 1994 Yield tlha I1,8 14,7 9,8 14,0 14,5 14,9 when, for the first time, the share of crop production Production 0001 260 376 283 369 433 415 in gross agricultural output represented more than Consumption p.c. Kg. 65 69 65 65 7l s0%.

Livestock numbers have declined by about 50% since 1991, with the exception of dairy cows, which Toble l6 nilk bolonce sheet only declined by about 30%. Due to the restructur- 1992 1993 1994 1995 t996 1997 ing and privatisation process still in progress, it can Dairy Cows 000h 738 687 61s 586 590 586 be expected that a slow decline will continue in the Yield Kg. 3281 3008 3084 3104 3105 3104 next few years (Graph 4). Production 000t 2421 2067 1896 l8l9 t832 l8l9 Availability 000t 1256 ll97 1088 885 790 822 Consumption p.c. Kg. 334 319 29t 238 2t3 222 Self-sufficiency % l93o/o l73o/o r74% 206% 232o/o 22lo/o 2.2.9. Milk

The structure of the cow herd has changed dramati- cally as many of the large dairy herds in agricultur- al companies did not survive, and production is now Groph 4 [volution ol liveslotk number more widely dispersed in many very small farms and household plots. This inefficiency has led to Evolution of livestock numben (000) declining milk yields and a higher proportion of low

quality milk supplied to processors. 8000

7000

Milk yields began to recover in 1995 and production 6000 5000 levels in the sector are stabilising. On the other hand, per capita consumption was decreasing and only 3000 slight in 1997 seems to have begun a 2000

recovery. r000

As a result, the degree of self-sufficiency in Lithua- nia always remained above 100% and since 1994

CEC Reports - Lithuania > 2l 2.2.9. Beef 2.2.1 0. Pig meat

The production of beef meat can be seen mainly as In 1996 more than 50% of the production of pig a by-product of milk production. Low producer meat was still concentrated in large-scale production prices have not allowed the sector to be profitable complexes. Since the disruption of the Soviet system and the poor performance of the processing sector the performance of the pig sector has declined, aggravated the situation. mainly as a result of the increase in price and decline in quality of feed products. The average weight of slaughtered animals recov- ered over recent years, after a decline mainly due to Nevertheless, the profitability of pig fattening was the decline in the quality of animal feed with a low quite good due to the favourable relationship protein content, and is now set at around 300 kg. On between feed grain prices and pig meat prices the other hand, production is still declining because although the poor conversion rate could erode the of the drop in livestock number and slaughters margins to some extent (Table 18). (Table 17). However, the drop in the average weight of slaugh- Table I 7 leef •ala ace shHt tered animals was not so steep and the reduction in production between 1992 and 1996 was around 40% 1992 1993 1994 1995 1996 1997 following the decrease in domestic utilisation. Self- Slaughtered OOOh 827 sos 295 218 248 270 Average weight Kg. 273 321 393 399 335 307 sufficiency remained stable at around 100% with the Production OOOt 226 162 116 87 83 83 main exception being in 1994 when Lithuania Availability OOOt 124 116 93 100 82 83 imported pig meat, mainly from the EU. Food per capita Kg. 33,0 30,9 24,8 27,0 22,1 22,5 Self-sufficiency % 181'/o 140% 125% 81'/o 101% 100% 2.2.11. Poultry meat

Table 18 Pig •eat balance sheet As for pig meat, in the case of poultry big agricul- tural companies and enterprises were still responsi- 1992 1993 1994 1995 1996 1997 ble in 1996 for a large share of production (around Slaughtered OOOh 1796 1005 936 1083 1136 1130 Average weight Kg. 8 90 87 86 78 81 70% in 1996). Poultry production suffered the same Production OOOt 155 90 82 93 89 92 problems of feed shortage, which affected the other Availability OOOt 155 91 90 92 91 92 sectors. Food per capita Kg. 28,5 20,8 22,3 23,4 23,8 24,2 Self-sufficiency % 100% 99% 91% 101% 98% 100% However, after a steep decline in 1993, production began to recover slowly with an overall increase of approx. 20% in the last five years. Consumption has Table 19 Poultry •eat balaace sheet also been increasing since 1994. In 1996 consump- tion exceeded production and for the first time, after 1992 1993 1994 1995 1996 1997 being a traditional exporter to the Soviet market for Slaughtered. OOOh 26844 18604 19865 19314 17377 18000 Average weight Kg. 1,2 1,2 1,2 1,3 1,4 1,4 so long, Lithuania become a net-importer (Table 19). Production OOOt 32 22 24 26 25 26 Availability OOOt 30 21 23 25 26 28 Food per capita Kg. 8,1 s,s 6,0 6,7 7,1 7,5 Self-sufficiency % 104% 106% 106% 105% 96% 94%

22 < CEC Reports - Lithuania 2.3 Forestry tion. About 1/3 of cutting areas is left to natural regeneration. Forests in Lithuania occupy almost 113 of the terri­ tory. According to the data for 1 January 1996, Forestry and the forest industry hold considerable forestland makes up 1.976.000 hectares, while importance for the economy of Lithuania. The coun­ forested land occupies 1.871.000 hectares. Forests try's export of wood and wood products amounts to cover 30,1% of the whole territory of Lithuania. 10% of total export value. Forestry and the forest Since World War II forest coverage has increased by industry have a significant number of employees: almost 9% (in 1948 it was 21,2%). 15,9 thousand and 34,7 thousand respectively (Table 20). In the tree species composition pine (37,6%), spruce (24,0%) and birch (19,5%) prevail in Lithuanian Table 20 Annual forest felling and exports forests. Black alders make up 5,6% of all the forests, 199S 1996 1997* white alder- 5,6%, aspen- 2,6%, ash- 2,7%, oak- Annual forest fe1Hn1 (thou. mJ) 1,8%, other tree species- 0,6%. State owned forests 5280 4762 4248 Private forests 697 774 897 Exports (thou. W) The average growing stock volume per hectare Pulpwood 1469 751 697 3 amounts to 188 m • Since World War II timber Sawn wood 748 1039 1011 resources have increased more than twice. At pre­ Total 1769 952 774 sent, the total growing stock volume amounts to • Preliminary 3 351,8 mill. m • The average forest land area per capi­ ta makes up 0,51 hectares, which corresponds to 95 m3 of timber. Therefore, besides its economic importance, the for­ est sector plays significant social role, especially in Lithuanian policy of forest use is based on the prin­ rural areas. The main part (over 90%) of the timber ciples of sustainable and multiple-use management. processing industry is privately owned. The struc­ Annual harvesting foreseen until the year 2003 is ture of ownership has changed considerably since 3 5, 1 mill. m • In a large number of forests (27%) there the restoration of Lithuania's independence in 1991. are restrictions on forest management because of Since the beginning of Land Reform, ownership environmental requirements (protection of bio­ rights have been restored to more than 80 thousand diversity, protective functions of forests etc.). Com­ forest owners. At present (1997) the share of private mercial forests make up 73%. In these forests man­ forests and forests which are currently being priva­ agement activities have comparably small restric­ tised has reached 18,7% of the total forest area. tions, however, general silvicultural and ecological However, the process of restitution continues and requirements should be followed. During harvesting following the completion of Land Reform private and silvicultural operations, environmentally sound forests will occupy 40-45% of total forest area. and economically viable technologies are being introduced on a broader scale. About 12% of the territory in Lithuania is under pro­ tection as Parks. There were 5 National parks estab­ All silvicultural measures are aimed at the establish­ lished between 197 4 and 1991, and their total area is ment of productive and resistant species, and the 152,2 thousand hectares. These parks are founded in protection of biological and genetic diversity in woody areas, where forests cover approx. 60% of the forests. While carrying out reforestation, planting is park area. In 1992, 30 Regional parks were founded. successfully combined with natural forest regenera-

CEC Reports - Lllhuania > 23 2.3. Agriculturaltrade a decline in the share going to Europe. In eastern markets Lithuania still sells meat and dairy products Following the restoration of independence and the which face difficulties in entering the EU market. establishment of trade relations with the main cur­ The European Union share declined from 27,6%, rent trading partners, imports of food products have where it had been for three years, to 17,4% in 1996. been growing rapidly. These are mainly high value­ added products, including vegetable oils, fresh, These shifts are related to numerous factors such as canned and frozen fruits and vegetables, confec­ quality and marketing infrastructure but they are tionery products, juices, margarine and spreads, also consistent with the appreciation of the Lita rel­ yoghurts, cheese, etc. ative to European currencies and the depreciation relative to NIS currencies. Livestock products in general, and meat and milk products in particular, are still the largest compo­ The share of exports going to Estonia and Latvia nents of agri-food exports. In recent years re­ steadily grew from 1994. In 1996 and first half of exports, especially of prepared food products and 1997 it was around I 0-11% of total agricultural and alcoholic beverages, have accounted for a growing food product exports. share of agricultural and food exports. The principal source of imports over the last three The balance of trade in agricultural and food prod­ years has been Europe, and this increased from 53% ucts became negative in 1996, but it has been con­ in 1993 to around 65% in each of the last three tinuously deteriorating since 1993. From 1995 to years. The second important source has been the 1996, the balance of trade with Estonia, Latvia, and NIS, but this share has declined from 39% in 1993 the NIS (Newly Independent States) improved, and to around 21% in the last three years. A close third deteriorated by almost 50 million ECU for the EU. and gaining in import share are the other CECs, which are now close to 15%. In particular, imports Europe and the NIS were the destinations for 98% of from the two other Baltic countries have also Lithuanian exports from 1993 to 1995 and 94% in increased from 2 to 3% between 1995 and 1996 and 1996. In the last two years, there has been an fell slightly in the first half of 1997 (Table 21). increase in the share of exports going to the NIS and

'••I• 21 Tr••• '' r11r•• Exports Imports Bllanee (000 ECU) 1995 1996 1997* 1995 1996 1997* 1995 1996 1997* EU 27,60~ 17,4% 20,00~ 41,90/. 39,2% 45,1% -52531 -102494 EFTA ·1,4% 3,1% 2,4% 5,2% 8,4% 7,8% -14239 -24715 Estonia 3,2% 4,6% l,S% 1,90.4 6SSO 11482 100.4 4% Latvia 4,8% 5,9% } 0,9% l,lo/'t } 14908 20820 CEC Malta and Cyprus 3,()0.4 1,4% (in others) 14,1o/'• 14,9% (in others) -41645 -61788 Turkey 0,00.4 0,1% (in others) 0,6% O,So/', (in others) -2258 -1841 NIS 58,5% 62,4% 59,1% 21,3% 21,2o/'. 10,SO/• 142797 176598 USA O,S% o.so~ (in others) 2,70/o 4,1%· (in others) -8258 . -1S186 Other 1,0% 4,3% 8,5% ll,SO~ 8,7'.4 32,3% -40609 -20828 TOfAL (000 ECU) 381164 . 437873 545526 376449 455826 555026 4715 -17953 -9501 *Proliminlry

2• < CEC Reports - Lithuania Both imports and exports include a substantial quan­ ernment estimates, with the currently available tity of goods re-exported from East to West and West resources, the completion of the restitution process to East. will require another three to five years.

The process of surveying land, drawing maps, iden­ 2.4. Farm structures and privatisation tifying land use and legally registering ownership documents, has been extremely time consuming and Land restitution and privatisation of State and Col­ administratively and technically difficult. Adminis­ lective farms and farm assets were initiated at the tratively, land reform is now being run by the same time in 1991 and encouraged the development National Land Survey under the Ministry of Agri­ of family farms. culture and Forestry.

However, the legal framework guiding the restitution Privatisation also has a direct impact on the devel­ and land privatisation process has changed several opment of the land market, since only registered times since independence and these changes have land can be sold. Furthermore, the land market is significantly slowed the whole process. constrained by the legal limits restricting land own­ ership to physical persons and the State and setting The Law on the procedures and conditions estab­ an upper limit on individually-owned land in order lishing the basic legal framework for the restitution to prevent the use of land as collateral. EU legal of the rights of ownership to existing property was persons, however, recently became eligible for passed in June 1991 and subsequently amended on non-agricultural land ownership since the Europe several occasions between 1992 and 1996. Association Agreement came into force on I Febru­ ary 1998. In January 1997 Parliament suspended the law since it had become very complex to administer. The new There is no reliable information available on actual law, which was enacted in July 1997, intends to land sales, but according to estimates, the market is accelerate the process, but in opening the process to rather modest. By mid-1995 only 19,000 land trans­ a wider range of claimants it is likely to cause fur­ actions had taken place. At the same time there is ther delays unless significant additional resources quite an active lease market which is expected to are made available. increase activity further as the compulsory leasing to agricultural companies expired in 1997. In practical terms, as of mid-1997, the restitution process had only resulted in ownership of less than The most significant land trading activity is related 50% of agricultural land, and less than one-fifth of to the purchase from the government of the house­ land is still used by the transitional successors of hold plots distributed in rural areas before the resti­ former large-scale farms. tution began in earnest. The average price for agri­ cultural land purchased from the State in 1996 was Furthef!llore, the Lithuanian government selected a about 474 ECU per hectares, but the market price way of restitution which allowed not only compen­ was substantially lower. The current users have pri­ sation in kind, but also in cash, and the implementa­ ority over former owners who might claim the plots. tion of this program has turned out to be rather dif­ Of 340.000 household plots, about one third of the ficult and time consuming. owners have already purchased their plots with pri­ vatisation vouchers. Another third of users have The cash compensation is significantly constrained traded land acquired through other means in by the availability of resources. According to gov-

CEC Reports -Lithuania > 25 exchange for ownership of their plots. The remain­ an average size of about 370 hectares, while the ing third of the cases are still unsettled. number of family farms has increased to about 200 thousand. These changes have been accompanied by Land and property privatisation led to fragmentation changes in land use and production patterns. (See and many small-scale private farms were created chapter 2.1) (Table 22). which were unlikely to provide sufficient income for full-time farmers. However, the number of family The "organisational infrastructure" of agriculture is farms actually operating is less than half of the own­ not well developed in Lithuania, and this hampers ership number, so that the average size of the oper­ co-ordination and co-operation within the agricul­ ating farms is at least twice the average size of the tural sector and between farmers and the food pro­ owned areas. cessing industry.

However, during the process of agricultural reform, Table 22 Land users and farm size four major organisations have emerged. The Cham­ 1994 1/1/1995 1/1/1996 1/1/1997 ber of Agriculture, a traditional institution with roots Agricultural Companies 3483 2880 2611 1660 in the pre-Soviet era, which represents all segments Average size, ba 450,0 378,0 306,3 371,6 Family farms (000) 111,5 134,6 165,8 196,0 of agricultural production. The Lithuanian Farmers' Average size, ba 8,8 8,5 7,8 7,6 Union, the major organisation representing private Household plots (000) 404,0 396,7 378,4 342,7 farmers, which provides advisory services and Average size, ba 2,1 2,1 2,2 2,2 information as well as interest representation. The Association for Land Owners, which has a modest membership and influence. The Association of Agri­ Currently three different types of farming organisa­ cultural Companies, which was formed by the suc­ tions characterise the Lithuanian farming structure. cessors to the former large-scale farms. There are Agricultural Companies, which are large farming many other smaller organisations that are members enterprises created as a result of the transformation of the Chamber, including a new Association of of the state and collective farms. In addition to pri­ Dairy Farmers. Most of these associations were mary agriculture, the agricultural companies are established after independence and their political also involved in food processing and trading activi- influence was relatively small during the 1991-94 ties. period. In the 1994-95 period, however, these groups, and especially agricultural producers, wield- Family farms, established before independence ed greater influence, as was reflected in the intro- through the Law on Peasant Farms, which allowed duction of many new commodity support policies rural inhabitants to receive user rights on land up to and sectorial subsidies. 50 hectares. This process of land allocation contin- ued until September 1991, when the new overall laws for land restitution superseded it. 2.5. Rural development

Household plots, which are often operated by the The country consists of 10 counties with two main shareholders of agricultural companies or by rural cities, Vilnius and Kaunas. (There are actually five inhabitants to supplement their income from other other main cities including Klaipeda, Panevezys and sources. Siauliai). There have been attempts made in the past to develop a more multi-polar structure by promot- According to data available on January 1, 1997, less ing secondary cities but approx. 32% of the Lithuan- than 2000 of these large-scale farms survived with ian population still live in rural areas, with the

26 c CEC Reports - Lithuania majority employed directly or indirectly in agricul- the dissolution of the large-scale farms and the mov- ture. Lithuania has a well-developed network of ment towards lighter, more efficient, small-scale highways and secondary roads, but some of the farm machinery and environment-friendly practices, basic services, such as water supply, and telecom- the situation is likely to improve. munications, still remain under-developed in rural areas. These problems are currently addressed by Rural Support Fund, providing co-financing of the 2.7. Up- and downstream activities development of the road and communications net­ works as well as other areas of infrastructure. 2.7 .1. Up-stream

The agricultural reform and privatisation created During the Soviet period Lithuania imported all many serious problems in rural areas, because dur­ agricultural machinery and equipment from the for­ ing the Soviet period, the main social, medical and mer Soviet Union. In addition, there were about 10 cultural services were provided in special, purpose­ light engineering enterprises in the country, which built facilities on state and collective farms. With the specialised in the production of spare parts and feed farms restructuring, these functions were transferred processing equipment. to local government, and many services ceased to be available in rural areas. The gap in income between At present on the seed producers market private rural and urban areas seems to be deep and there is firms dominate, the supply of fertilisers has also a need to diversify the rural economy also to counter been decentralised and private dealers prevail in the the increasing unemployment in rural areas. The marketing of specially imported fertilisers and Rural Support Fund has special programmes target­ chemicals. Agricultural machinery and equipment ing diversification of the rural economy and the cre­ are imported by private producers and traders from ation of additional and alternative jobs. both the former Soviet Union and western Europe including new and second-hand machinery, and are marketed by private sector companies. 2.6. Agriculture and the environment

Until a few years ago very little attention was paid in 2.7.2. Down-stream Lithuania to environmental issues and large areas suffered from agricultural pollution. The situation in Lithuania's food processing sector reflects the structure which emerged in the Soviet Ground water sources in rural areas close to large period and consisted of large or medium-size state­ industrial livestock units were contaminated by pol­ owned concentrated enterprises mainly oriented lutants originating from poor handling of animal towards dairy and meat processing. During the tran­ waste. Excessive use and misuse of fertilisers and sition period, these enterprises suffered from large chemicals in the past have also given rise to envi­ over-capacity with underdeveloped input supply and ronmental problems. The dramatic decline iil their output marketing, since in the past up to 40% of use during the transition period, as well as the reduc­ their output was supplied to the former centrally­ tion in the livestock number by over 50%, led to pos­ planned Soviet Union market. itive environmental consequences. On the dairy side, following the sharp drop in the Other environmental concerns are related to soil ero­ volume of milk production, the financial situation of sion due to poor farming practices, which cover many milk processing plants deteriorated and they almost 20% of agricultural land in Lithuania. With accumulated debts which in 1995 reached almost

C'EC Report;·- L1thuuniu > 27 50% of their asset value. In 1996 many dairy plants 10-30% of the processing enterprises were priva- became insolvent. In 1997 the tendency for concen- tised. tration on dairy processing has strengthened. In 1994 the favourable conditions offered to agricul­ The major problems for the meat industry are over­ tural producers (they only had to pay 2,5% of the capacity and lack of capital. Many of the processing nominal value of shares) accelerated the process so facilities are obsolete, with low hygiene standards. that by the end of the year more than 50% of assets Privatisation failed to give the necessary incentive in the processing industry had been privatised. In for the restructuring and in many cases it was more particular a relatively high proportion of poultry appropriate economically to construct a new enter­ processing enterprises and dairies had been priva­ prise rather than to restructure an old one. Further, tised, reflecting their higher level of profitability, due to producers' dissatisfaction with the payment while interest in the meat industry still remained terms of the large meat plants a large number of limited. small meat processing enterprises were established. In order to improve their financial situation, some At the beginning of 1997 the Ministry of Economy big meat processing enterprises expanded their ser­ estimates almost 90% of all enterprises designated vices: they slaughter animals for farmers and other for privatisation were effectively privatised. Howev­ small meat processing companies and lease their er, both upstream and downstream sectors are not refrigerating facilities. yet adapted to the requirements of the competitive international markets nor the local emerging priva­ The same problems also affect the grain and the fruit tised agriculture. and vegetable processing industries, which have out­ dated machinery and equipment and an extremely The milk processing industry, for instance, reacted low capacity utilisation due to shortages of raw to this situation with a strong production concentra­ materials and a lack of markets for final products. tion, with small enterprises taken over by bigger The low rate of capacity utilisation combined with export-oriented companies which strengthened their low efficiency and limited possibilities to reduce financial position during 1996/97. According to the costs due to inefficient technology contributed to latest estimates, a dairy will be able to survive in growing product unit cost and, in some cases, bank­ Lithuania only if it processes no less than 50 thou­ ruptcies. sand tons of raw milk per year. Therefore, out of 37 dairies which are active today, only 6-8 big restruc­ tured dairies will remain. In the grain sector one­ 2.7.3. Up and Down-stream privatisation grain elevator holds the strategic grain reserves for Lithuania and will continue in state ownership. The privatisation of industry and trade, as in other Central European countries, was one of the major At a general level, the privatisation of the agri-food initial objectives of Lithuanian economic reform. sector ran into a number of problems. Firstly, However, the agri-processing sector has proved although almost all the agri-processing enterprises harder to privatise than other industries. are now privatised to various degrees, there has been little change in their management and decision-mak­ The consequence of the primary privatisation stage, ing structure, mainly because of the nature of the launched in 1992, achieved only limited results, privatisation process. In addition, these assets were mainly due to a lack of interested buyers and the privatised via "vouchers" and this means that no complicated privatisation procedures. In fact only new money came into the sector.

28 c CEC Reports - Lithuania Secondly, the privatised companies found that there Food products, beverages and tobacco represent the were insufficient markets for their products and they second most important sector ofFDI (17%) which is lacked marketing expertise. Finally, the lack of dominated by tobacco, beer and the soft drinks domestic and/or foreign investment in food process­ industry. ing companies has prevented the modernisation of their plant and equipment. However, in order to Investments in the agricultural sector are modest, attract investments the problem of over-capacity but constantly growing. In July 1997 they amounted should be resolved. Instead, the privatisation of big to around 1,8 million ECU and were mainly provid­ food enterprises, which play the most important role ed by Germans, French and Israeli investors. on the market through the control of the distribution and retail sectors, was rather slow. The current list of privatisation includes processing enterprises of this type. However, their over-capacity, outdated equip­ ment and high indebtedness together with the fact that most plants do not meet EU quality and hygiene standards and are consequently can not export to the EU market, kept foreign investors away.

2.7.4. Foreign Direct lnveshnent (FDI)

At present, both the downstream and the processing sectors are only relatively open to foreign investors because shares acquired by agricultural producers can be sold only to other agricultural producers. In 1997 agricultural producers possessed 32% of the shares in the meat processing industry and 31% in the milk processing industry, which means respec­ tively 83% and 77% of the privatisation level. In general, according to the figures released by the Lithuanian Investment Agency, foreign investors acquired only 0,6% of the privatised assets in the processing sector. The activities in this field are reg­ ulated by the Law on Foreign Capital Investments adopted in June 1995 which guarantees considerable incentives for the activities of foreign economic entities both on the side of tax reduction and repa­ triation of profits. In June 1996, Parliament also passed a Constitutional law which legalised the sale of non-agricultural land to foreign nationals.

According to balance of payments data, during 1997, net FDI rose sharply compared to previous years and totalled some 3,4% of GDP. The largest investors are the US, Sweden and Germany.

CEC Reports - Lithuania > 29 3. Agriculturol ond rurol policies

Toble 23 Agritulture Budgel 1994'1997

(000 Ecu) 1994 1995 1996 1997* l. Financing of agricultural agencies 14670 13574 r8198 24670 2. Strategic food and seed reserves 2621 5616 5333 5873 3. Capital invesftnent 1,777 757 897 272 4. Compensation for land and forest 0 0 2173 8900 5. Ministry of Agriculture 669 805 t32l r642 6. Nati. Agric. Progr. (Rural Support Fund in'97) 42609 58809 74379 88333 6.1 Tot. at disposal of the Min. ofAgr. 42609 58809 74379 68308 6.1.1 Farm price subsidies 5817 27008 38513 46725 6.1.2 Subsidy for qualrty breeds and seeds 273 l52r 2862 3560 6.1.3 Credit programs 2r357 666r 4035 2225 6.1.4 NewTechnology and Machinery 0 0 0 890 6.1.5 Financing of Breeding Program l1l3 2118 3M7 400s 6.1.6 Ecological farming 735 722 528 890 445 6.1.7 Production Quality Research 0 0 0 6.1.8 Agriculttral Research and Extension 861 t579 2406 5t l8 6.1.9 Rural loan Guarantee Fund 0 0 0 M50 6.2 Tot. at disposal of Regional Agr. Boards 0 0 0 20025 17800 6.2. I Investment Grant Program 0 0 0 6.2.2Disaster Assistance Program 0 0 0 2225 6.3 Net Cost of Intervention Stock 0 3273 2805 0 6.4 Subsidy for baby food 0 0 89 0 6.5 Grants for low productivity land 0 2657 2440 0 6.6 Farm establishment and infrastructures 7770 6680 8477 0 6.7 Limiting ofAcid Soils 0 3080 0 0 6.8 Development of Co-operation Agi-service 1344 0 2140 0 0 0 275 7 . Development of fisheries and processing 0 8. Other 3339 35 l4 6&r 0 TOTAL 62346 79s60 r02300 t29964 TOTAL at 1994 constant value 62346 56992 58625 66320

* Projected

The main instruments of agricultural policy can be Groph 5 Agriculturol poliry expendilure reollototion in l99l divided into two groups according to their primary price and Guarantee Fund objectives. The first group consists of 5% income support measures, which includes measures that protect domestic prices, regulate domestic mar- kets and support incomes. The second group includes structural measures and measures that improve the production base (Graph 5).

Primary responsibility for formulating agricultural policy lies with the Ministry for Agriculture and Forestry, which was totally restructured by the

30 < CEC Reports - Lithuania Republic of Lithuania in December 1996. Measures tural products. In November 1992, however, the pol­ that require public funding must also be approved by icy of supporting prices was eliminated and there the Ministry for the Economy, and the Council on were essentially no price support between 1993 and Competition and Consumer Protection are also indi­ 1995. The third stage of the reform process took rectly involved in the consultation process. In order place in 1995, when the government launched a new to ensure a more efficient use and a better adminis­ market intervention programme to support farm tration of the state aid to the agricultural sector, the incomes. Price support measures implemented in Government decided to concentrate all the financial 1995 include Minimum Marginal Purchase Price resources previously allocated for different pro­ (MMPP) for specified quantities of farm products. grams, by direct financing or through the Rural Sup­ Inasmuch as the MMPP is intended as a floor price, port Fund. this programme could be compared to the interven­ tion price system in the EU. However, the govern­ In 1997, the Rural Support Fund with a budget of ment had no intervention system and had to rely 88,3 million ECU, accounted for 5,8% of the State totally on competition among processors to ensure Budget. Its allocation among different agricultural that producers received these minimum prices. The policies is shown in the next graph and individual subsidies were then paid directly to farmers through measures are described in the following pages. the processing industry to keep consumer prices lower than they would otherwise be (Table 24).

3. 1. Agricultural market policy At the beginning of 1997, the new government began a series of changes in the programs that has eliminated or reduced the levels of MMPPs and tar­ 3. 1.1. Market prices and subsidies geted direct payments to higher quality products. The new price system came into force on 1 April Since the beginning of· the economic reforms in 1997. For the implementation of market regulation Lithuania, the pricing system has been radically policies the Government set up the new agricultural altered. In broad terms, the price reform process can market regulation agency which is supposed to be divided into three stages. In the first stage, the undertake intervention purchases with the purpose differentiated procurement price system of the for­ of price stabilisation and income security. mer Soviet Union was replaced by uniform procure­ ment prices in January 1991. In the second stage, Accordingly, it was decided to regulate the purchase which started at the beginning of 1992, producer prices of products for human consumption only support prices were introduced for the main agricul- (wheat and rye), and a new quality category was

Ta.le 24 Price support measures

1995 199~ 1996 1996 1997 1997 Quota** MMPP* Quota** MMPP* Quota** MPP* Wheat 260 106-116 286 109-119 200 125-156 Rye 120 77 120 99 80 125 Barley 30 89-96 30 103-114 Sugar beet 700 32 800 32 850 36 Milk 1200 77-109 1322 103-122 for new procedures see text Cattle 404-578 395-691 Pigs 751-770 968-1086 1202-1268 •• (000) IDna; •ECU per ton; 1997 Preliminary

CEC Reports - Lithuania ,. 31 introduced for the human consumption of wheat 3.1.2. Price Gap (more than 28% of gluten), the production of which is encouraged by an 11% higher purchase price. Since the beginning of the reforms, farm prices have been growing constantly in nominal terms at a slow­ For the same reason, it is planned to essentially er pace than inflation, thus leading to a decline in change the procedures of milk purchasing. In the real terms. When prices are converted to ECU, they period of pasturage from May to November 1997, tend to increase over time, reflecting the fact that the marginal support price of 122 ECU per ton for Litas has been appreciating in real terms against the basic fat content milk is applied, which will guaran­ ECU (Table 25). tee minimum supported income for milk producers. Price fluctuations in the surplus period will be Generally speaking, agricultural prices are substan­ equalised by paying subsidies for different quality tially lower than EU prices. Only in 1996, wheat milk, which do not exceed I 0% of minimum price. prices in Lithuania were higher than in the EU fol­ In order to reduce seasonal fluctuations and to lowing the increase in the world price. improve production quality, since November 1997 instead of minimum support price the additional Due to the traditional high self-sufficiency in potato winter fee has been introduced. For highest quality production, and to the low level of commercialisa­ milk 22,3 ECU per ton, for first grade milk 15, I tion, potato prices as well as fruit and vegetable ECU per ton and for second grade milk I 0, 7 ECU prices in Lithuania were not subject to government per ton. regulation. Producers prices are still low relative to those in the European and world markets, but large For cattle in 1996, 2239 thousand ECU in subsidies fluctuations can occur due to domestic production were paid. In 1997 cattle were purchased at negoti­ variability. ated market prices by paying subsidies of 84,6 ECU per head of I, 2, 3A, 4A, 4B category (classification In the dairy and meat industries the problem of "Europe") and subsidies of 133,5 ECU per head of increasing competition is especially complicated. mixed breed meat cattle weighting over 400 kg. Due to dual-purpose cattle breeds used for milk and meat production, beef is considered a by-product of In 1996, 3113,4 ECU of subsidies were paid for the dairy sector. Quality and productivity is relative­ pigs. In 1997, the level of purchase prices for high­ ly low and production costs are high. er quality pigs was set at the price level reached in the fourth quarter of 1996. There are no plans to reg­ Milk prices have been very low in Lithuania, despite ulate purchase of lower quality pigs. the 15-fold increase since 1991, as a result of rela-

Lithuuia'l EU Produeen priee World Prieea EU lllltitational Prices pricesln %of 1993 1995 1996 1995 1996 199!196 1996197 Wheat* 40'.4 65o/• 116% 68% 102% 800.4 80% Barley4' 35% 500/o 670.4 96% 600/o 91% Potato 600/e 300.4 76% Beet-.. 30-35% 43% 45% 74% 30-35% 32-37% Milk** 20% 300/e 4()0/. 88% 7B-/e 300/o 35% Pig••· 43% 74o/. 78% 1200.4 9B-/e Poultry* 40 470.4 5101. 95% 103% Lithuanian prices adjustment for compariloD purpose: • • S% • •• • 10% • ... • lS%

32 < CEC Reports - Lithuania tively low quality and a weak marketing infrastruc­ tic farm price levels are currently close to or exceed­ ture as well as inefficiencies in many enterprises of ing world market price levels, prices are likely to the processing industry. remain or decline to world price levels for the indus­ try to survive and be competitive in the internation­ Pig meat prices are relatively high compared to al context. prices for beef. Rising prices in the grain sector have an important impact on the profitability of the dairy and pig meat as well as poultry meat production. Pig 3. 1.3. Producers and Consumers Subsidy meat is closer to the international quality as well as Equivalents poultry and eggs the quality of which is almost com­ parable to western products. The percentage PSE for all products fell between 1986 and 1992 and became negative, representing Prior the reform the level of retail food prices rela­ an implicit taxation of the sector, in 1993 and 1994. tive to those in the EU was mostly in the 20-60% In 1995 the PSE was slightly positive, and increased range, but quality differences explain a sizeable pro­ to about 14% in 1996, reaching about 30% of the portion of the gap. From 1993 real retail prices fell level of support in the EU, and being slightly below or stabilised although ECU prices continued to the average in other CECs. increase because of the combination of inflation and the fixed parity to the dollar. After 1995, limits on With the abolition of consumer subsidies in 1991, retail margins were abolished with the introduction the percentage CSE became the mirror image of the of a more protectionist agricultural policy and retail market price support element of the PSE. Between prices became a major component in driving infla­ 1992 and 1994 it represented an implicit subsidy to tion. It is doubtful whether the link to the world mar­ consumers, and with the increase in market price ket is sufficiently strong to maintain current price support in 199 5 and 1996 it became once again an relations if monetary policy is relaxed and the nom­ implicit tax. inal exchange rate allowed to depreciate.

Price adjustment for quality differences seems to be 3.2. Trade policy still necessary for the comparison of prices since it is hard to expect radical changes in production tech­ nologies and a significant improvement in produc­ 3.2.1. Border measures tion efficiency, processing and distribution. After the introduction of the guaranteed purchase pro­ Trade policy developed from the implementation of gram, there was a significant increase in farm quantitative restrictions, including export bans and prices, which resulted in a higher retail price licensing, towards more open trade regulations. increase. Furthermore, input prices are still growing Export restrictions at early stages reflected a fear of toward world prices which, together with slow food deficits in the domestic market and an attempt improvements in production and market efficiency, to prevent product price increases. Import restric­ result in higher costs and price increases. Consider­ tions were intended to provide protection and reduce ing the information about the price gap and market competition for the domestic food industry. efficiency, prices are likely to develop in two direc­ tions. For products, for which domestic farm price In 1993, state trade monopolies were abolished and levels are still below world price levels, prices are trade began to be conducted by enterprises including likely to cat~h up with the .world price adjusted for trading companies, processors, and producers. quality differences. For products, for which domes- External pressures to establish consistent and trans-

CEC Reports- Lithuania > 33 parent trade policies led to the elimination of non­ 3.2.2. Trade agreements tariff barriers and a switch to the use of mostly ad valorem tariffs. Trade with the European Union was regulated by MFN tariffs until January 1995, when the preferen­ Bilateral and multilateral agreements were signed to tial agreement (Free Trade Agreement) came into influence this process: the Second International effect. The agreement sets up a six year transition Monetary Fund (IMF) Memorandum in September period for agriculture, during which Lithuania will 1994, the European Union Free Trade Agreement, apply rather high protection levels (import duties) which became effective in January 1995, and the which are gradually reduced until the end of the Memorandum on Foreign Trade Policy provided in period. The agreement reduces EU duties by 60% late 1994 as a part of the accession to the World beginning in 1995 for limited imports into the Euro­ Trade Organisation (WTO). pean Union; namely pork (1000 mt), chicken (500mt), skim milk powder (2900 mt for the first On April 1, 1995, a government resolution estab­ year increasing to 3500 mt in the third year), butter lished a differentiated tariff system that includes (1 000 mt increasing to 1200 mt), and cheese. For MFN (conventional), preferential (under free trade skim milk powder, the quantities delivered exceed agreements), and autonomous tariffs. Trade policies by far the existing quotas, whereas the quotas for are beginning to harmonise the trade regime with butter and pork will probably not be fulfilled. domestic and world market conditions and con­ Reduced duties without quantity restrictions have straints. Import tariffs range from 20 to 30 percent been set for black currants, natural honey, apple for most agricultural and food products, except for juice, and some vegetables. sugar which was subject to tariffication in February 1997 at 87% (70% for exports from the EU under For live bovine animals there is an arrangement FTA) (Table 26). which permits exports to the EU of 3500 bovine ani­ mals (at 25% of regular import duties) and 1500 mt External constraints on trade policy decisions of beef (at 40% of the regular import duty). These included IMF (which had expired in September quotas are specified by the EU as a global quota for 1997) and World Bank Memoranda and the need to Lithuania, Estonia, and Latvia. Reduced EU trade keep policies consistent with WTO standards in barriers will not necessarily lead to increased anticipation of Lithuania's WTO accession. exports immediately. Time will be needed to reduce obstacles associated with certifications, quality standards, packaging deficiencies, and other mar­ keting infrastructures. On the import side, a quota

Table 26 Tariffs for agricultural products Rate % (ad valorem) MFN Autonomous Rate % (ad valorem) MFN Autonomous Live cattle 20 25 Cheese 30 35 Live pigs 20 25 Eggs 30 30 Live poultry 20 25 Potatoes 20 20 Beef and veal 30 30 Grain 30 35 Pig meat 30 30 Wheat and Rye Flour 30 35 Poultry meat 25 25 Combined feed 30 35 Milk and dairy 20 20 Sugar 87 87 Butter 45 45 Bakery products 30 35

34 < CEC Reports - Lithuania administration system has been established but still for Mutual Economic Assistance (COMECON) needs time to operate effectively. As a consequence, countries, and competition with subsidies, export imports of EU products are likely to exceed quota credits, and food aid provided by the European levels for some time. Since July 1996 the preferential Union and the United States. Trade policies in the EU import regime has been amended in order to take NIS have also been very erratic. In January 1995 into account the Uruguay Round results. Therefore, Lithuania and Russia granted each other MFN sta­ the level of reduction on the MFN tariffs for the EU tus, after a period when sanction tariffs of double the went from 60 to 80%. MFN levels were applied. Lithuania now has trade agreements with Ukraine, Belarus, Russia, Kazakh, The Baltic Free Trade Agreement (BFTA) was and Tajikistan, and is currently negotiating with signed in 1993, and came into effect in April 1994, other NIS member states. is intended to be a first step in the formation of a customs union. However, agricultural products were Since the CEFTA (Central European Free Trade excluded from the initial text, and it was decided to Association) countries have become some of the work out a separate agreement covering the missing most significant trading partners for Lithuania and trade areas. Lithuania has expressed an interest in joining CEFTA once its membership to the WTO has been After a long negotiation -essentially due to the approved, and bilateral free trade agreements have asymmetry between Estonia which had no import been reached with all CEFTA members. In particu­ tariff, and Lithuania and Latvia whose tariffs range lar, trade agreements with Poland and Slovenia have from 20 to 60%- an agreement was finally reached been completed, and negotiations with the Czech in May 1996, and came into force on 1 of January, Republic, Slovakia, and Hungary are continuing. 1997. This agreement establishes complete free trade for all products meeting the Baltic rules of Accession to the WTO is a precondition for progress origin. in other trade agreements and is a high priority. Lithuania is in the final stages of becoming a full The implementation process faces many challenges, member of the WTO, having had observer status in and the potential growth in intra-region trade is lim­ the General Agreement on Tariffs and Trade (GATT) ited by the fact that the three Baltic countries have since 1992. Many of the major steps necessary to under eight million consumers and are very similar bring Lithuania's trade policies in line with WTO in production structure and comparative advantages. regulations have already been completed. It is likely Relative competitiveness is already indicated by the that accession will be in 1998, and only after this fact that Estonia consistently has had the highest might the impact on domestic prices and policies intra-regional share of exports and Latvia consis­ become clear. tently has had the highest share of imports despite the fact that Latvia has had the highest import tariffs. 3.3. Structural Policy

The NIS region used to be a traditional market for Lithuanian products, but the exchange of goods 3.3.1. Support to lnveshnent under the Soviet system was a delivery system not driven by competitiveness and market forces. In The main supports to investment lie in the banking recent years trade with this region has been ham­ and credit system including a 30 million $ (about pered by declining demand, payment problems, high 26,7 million ECU) World Bank credit line to the transaction costs, competition from former Council Rural Support Fund (co-financing of government

CEC Reports- Lzthllu/11<1 > 35 formulated priority projects) and to the Partial Loan This practice has been changed by the co-financing Guarantee Fund set up in December 1997, which of the priority projects from the Rural Support Fund became operational at the beginning of 1998. which was established in January 1997, and allows the implementation of several committed investment Two years after the crisis, the Lithuanian banking programmes. That is, establishment of farms, ser­ sector is currently recovering thanks to the vice and processing co-operatives, introduction of dynamism of a small number of private banks, the new technologies and farm practices, high quahty strengthening of the regulatory framework and the seed production and breeding, ecological and envi­ improvement in the country's macroeconomic cli­ ronmentally friendly agriculture, diversification of mate. So far, the main provider of loans to the agri­ rural activities in less favoured areas, and develop­ cultural sector has been the Agricultural Bank, a ment of research, training and consultation. The best state-owned institution which is to be privatised dur­ projects are selected through a competition proce­ ing 1998 which owns 46 branches throughout the dure, and entitled to be supported by the Rural Sup­ country and constituted the third largest bank by port Fund. assets at the end of 1997. In 1997 the first Guarantee Fund for agricultural The supply of loans to the agricultural sector has loans was also put in place. It includes 4,5 million typically fallen short of potential demand for sever­ ECU appropriated from the 1997 budget of the al reasons. First, during the agrarian reform, land Rural Support Fund and it also received funds from has been separated from capital. Second even when the PHARE programme (2 million ECU). The regu­ there are enough resources, banks are unwilling to lations of the Fund provide limits for the guarantee extend loans to agricultural entities, given that agri­ amounts, and special requirements for the appli­ culture is a high risk sector due to the relative lack cants. Among others the farmer must own no less of security. In fact, land and facilities markets are than 9 hectares of agricultural land have at least two small and have rather low values. years farming experience, provide his own contribu­ tion for no less than 10% of the total value of the There were hopes that the situation on the credit project, and secure the loan by farm assets. The market would be improved by the target loan from share of risk is such as the Guarantee Fund of Agri­ the World Bank. But in mid-1997, a year and half cultural Loans guarantees the repayment of up to after the approval of the agreement, only 1,8 million 70% of the loan in the case of failure, the remaining ECU approx. have been drawn down because of the risk being borne by the lending bank. high interest rate (12-14% - that is, the same as the interest rate offered by commercial banks), and the very strict requirements which only few farmers are 3.3.2. Taxation able to meet. However, taking into consideration the situation described above, the formerly executed Since independence there has been a fundamental Programme of the Government provided for sub­ change in the tax system. A land tax was introduced sidised loans to farmers for the acquisition of agri­ in 1992 at a basic rate of 1,5% of the value of the cultural machinery and the construction of agricul­ land and 3% for land rented from the State. In 1993 tural facilities. The loans were to be paid from the land taxes averaged 2 ECU per hectare. During the resources of the commercial banks, while the subsi­ first three years of activity, however, most farmers dies for the farmers to pay the interest rates were to were exempt from land and personal income tax. come from the Government budget. Following the introduction of VAT in May 1994, agricultural producers were given special privileges. Up to January 1997, domestically produced agricul-

36 < CEC Reports - Litlwaniu tural and food products were subject to a temporary interest-free credit and subsidies for the elimination rate of9% instead of the general 18% rate. Current­ of pollutants, whereas the other 50% goes to the ly the VAT preferential rate has been discontinued elimination of pollutants at certain points (e.g. and the waiver of income and profit tax obligations processors). Tatula was the first programme official­ for farmers has not been extended (although farmers ly approved and sponsored by the Government and still benefit from a preferential tax rate) in order to involves I 05 farmers, 12 enterprises and 9 agricul­ provide a more cost effective and less distortive sup­ tural partnerships. Resources allocated to the pro­ port system. gram can be transferred to economic entities only through tenders. Between 25-60% of total cost, but no more than 22.250 ECU, is allocated to the win­ 3.4. Rural Development Policy ners of tenders, to finance measures provided for in the costs estimate. The strategic objective of this Rural development policies are at relatively early program is to transform in the Karst region about stages of development in Lithuania. However, 5% of all agricultural land in bio-organic agriculture despite the severe budgetary constrains, some by 2005-2010. Since 1997, the experiment carried progress has been made in different areas. Until out in the Karst region has been spread throughout 1995/96 the main source of support was the Farmers Lithuania and support for bio-organic and ecologi­ Support Fund which allocated between 1992 and cal farming is provided by means envisaged in the 1995 ECU 16 million for infrastructure assistance. Rural Support Fund. Support in less-favoured areas was allocated accord­ ing to soil quality (must be one quarter below aver­ age productivity) to compensate for income losses 3.6. Veterinary and Phytosanitary due to natural handicaps. In 1995 ECU 2 million legislation were spent on the program, which is about 10% of the agricultural budget. About the same amount was The importance of the meat and dairy industry in spent in 1996. In 1997, after the procedures of Lithuania suggests that the veterinary sector is a key financing were changed a targeted program, namely agricultural policy area, particularly with regard to "Restructuring of Economic Activities in Low Pro­ safeguarding export markets and with regard to the ductivity Soil Areas" was designed to improve the pre-accession strategy. living standard of the farming population and increase employment in the rural areas. The State Veterinary Service (SVS), established in 1991, is an organisation directly reporting to the Prime Minister but with close links to the Ministry 3.5. Agri-environmental Policy of Agriculture. A general advisory function for the whole veterinary sector is assumed by the Veterinary A pilot program of Environmental farming started in Council of Lithuania, which comprises representa- the Karst region with the "Tatula Program" in 1993. tives and specialists from the SVS, the Lithuanian Before registration in accordance with the law on Veterinary Academy and the Lithuanian Veterinary Public Agencies the Programme prepared during the Institute. period 1987-1993 was operating by the "Tatula" Fund. In 1996 about 0,6 million ECU, was provided A veterinary chamber does not exist in Lithuania. by the State budget for agriculture in the Karst Thus, most of the private veterinary practitioners are region, and spending is expected to increase to members of the Lithuanian Veterinary Association 0,9 million ECU in 1997. For the implementation of representing the professional body. Veterinary activ- the program 50% of the funds are allocated as ities are subject to license.

CEC Reports- Lithuania > 37 The EU veterinary acquis is in the process of being translated into the Lithuanian language and is analysed for the ways of integration into the nation­ al veterinary legislation. In areas like legislation on foodstuffs, framework acts need to be drafted. The strict application of the new concepts and standards will help to solve major problems for the integration of the agri-processing industry of Lithuania into the EU markets.

In the field of public health, in particular food con­ trol, there is an ongoing reorganisation to co-ordi­ nate the three institutions involved: the State Veteri­ nary Service, the State Quality Inspection and the Hygiene.

A more detailed description of the Lithuanian vet­ erinary sector and of its economic and political importance is presented in Annex II

38 c CEC R.-ports - Llllwaniu 4. Medium term outlook

4,1. Generol Economic Fromework 4.2. Commodity proiections (20031

Lithuanian economic growth has accelerated over 4.2.1. Cereols recent years dnven mainly by domestic demand investment and privatc consumption. Main assumptions

The macroeconomic hypothesis underlying the fol- Area will continue a slow recovery due to gov- lowrng outlook for agncultural products, is that this ernment policy programs for cereals and sta- positive trend will stabilise as a result of further bilise at the 1992-94level. structural reforms, such as the planned pnvatisation of large financial and non-financial enterprise, and Yield will continue to improve, but at a slower careful management of macroeconomic policy. rate than in the last two or three years.

The latter should aim to defend the considerable Food grarns: per capita consumption will sta- gains achieved in pnce stabilisation, strengthen fis- bilise around the present level. The current level cal consolidation, maintain a prudent and pragmatic of consumptron is the result of several years con- stance with regard to the exit from the currency sumption shift from more expcnsive livestock board regime and rein in pnvatc consumption if products towards grains and vegetables. As needed to preserve a sustainable development of the prices are stabilise and incomes start to recover, external accounts. it is likely that this tendency will stop.

I Feed grains will follow the development of live- stock with almost complete self-sufficiency.

The result is a growth in cereals production by about l0% between 1997 and 2003. This, compared with the increase in feed use, will imply a very slight decrease in the self-sufficiency rate. tabh 27 (ereolr proleclionr 1996 ly97 t99t Harv. fuea 000ha 1079 tI62 lt80 Yicld tlha 2,42 2,63 2,61 hoduction 000t 26ts 3052 3080 Availability 000t 2689 2746 28t6 Food 000t s26 537 540 Feed 000t r62t 1685 1750 Sced 000t 2t7 224 227 Food per capita Kg. t42 t45 t46 Self Sufiicienry % 97 lll 109 1997 Prclimmary; 198 Estimatc{ 200G2003 Forecast 4,2.2.5u9or

Ioble 28 Sugor beelr proletllonr

Harv. fuea Yield hoduction

1997 Preliminary; 1998 Estimated; 2000'2003 Forecast

Ioble 29 Whitc tugol prolecllonr .. .' '' , r996 t997:, ryrt' hoduction 00ft 89 lI& 125, Yield (tons white sugu productior/ Ha of sugu beet) t/ha 2,9 3,0. 3,I Yield (tons white sugar production/ tons zugu beet) % ll 12, '[?- Availability 000t 87 90 96 Food per capita Kg. 23,5 z4,a- 26: Self-sufficiency % 156 139' '146j

1997 Prcliminary; 1998 Ectinat€d; 2000-2003 Forecast

Main assumptions White sugar

Sugar beet I Sugar contents. Production of white sugar per hectares of sugar beet will recover the 1995 level I Area will continue to increase until there is a full at 3,7 t/hectares. The share of whlte sugar recovery. obtained by processing sugar beet will remain almost constant around l2o/o. t Yield will continue to improve, but at a slower rate than in the last two or three years. I Consumption is expected to continue the increasing trend although at a slower rate. I Processing use will increase following the assumption that future pnvatisation of the two As a result, production of both sugar beet and white big enterprises where government still has sugar are expected to increase by around 45% 20-25% will increase the activity of sugar between 1996 and 2003. refinenes. 4.2.3. Milk 4.2.4. BeeI

Main assumptions Main assumptions

I Due to Lithuania's expertise in the milk sector, I Livestock is expected to recover slowly since the milk yield is expected to increase and reach Lithuanran breed is both for dairy and meat pur- about 3,4 tlcow in 2003. poses and cattle numbers can not recover quick- ly through natural herd turnover. I The increase in processing is expected to accel- erate since at the beginning of 1998 thirteen I Total slaughters are based on an histoncal ratio Lithuanian dairy companies were awarded between cattle and slaushter numbers. export licenses to Western Europe. I Human consumption will increase slowly. I Human consumption is also expected to increase, but to remain far below the 1992-93 The result is that production will rncrease about level. l0% from 1997 following the increase in human consumption. As a result. the country will remain As a result of the balance sheet a growth in milk pro- around a level of complete self-sufficiency. duction is expected between 1997 and 2003. This, compared with the utilisation, will imply a potential surplus and exportable quantity and a self-sufficien- cy rate of 222o/o in 2003.

Ioble 30 nilk plolc(flort

1996 1997 l99E Dairy Cows 000h 590 586 606

Yield Kg. 3 105 3104 3092 Production 000t I 832 l8l9 1874 Availability 0Oft 790 822 863 Consumption p.c. Kg. 2t3 )7) 233 Self-sufficiency % 232 221 217

1997 Prcliminary; 1998 Estimatcd; 200G2003 Forecast

Ioble 3l Beef prole(tlonj 1996 1997 l99t Livestock 000h 1054 989 999 Slaughtered 000h 248 270 280 Average weight Kg. 335 307 303 hoduction 000t 83 83 85 Availability 000t 82 83 85 Food per caplta Kg. 22,1 22,5 23,A Self-sufficienry % l0l 100 99 1997 Prcliminary; 1998 Estimato( 200G2003 Forecasi 4.2.5. Pig meat 4.2,6. Poultry meot

Main assumpttons Main assumptions

I Slaughter number is determined by historical I Slaughter number is determined by historical ratio. ratio.

I Average weight will recover, but remain still I Average weight will decrease to 1,3 kg. taking below the current EU average (90 Ke). into account the possible shift towards more industnal production. I Also meat consumption will recover the 1992 level since pork rs the favounte meat in the diet I Human consumption will continue its upward of Lithuanian people. trend (Table 33).

I Other uses (processing) will slowly increase The result is an increase in production accompanied with economic recovery and the pnvatisation of by a growth in imports, which will satisfo consump- the processing industry (Table 32). tion demands at better prices.

The result is that pig meat production will increase slightly up to 2003. Nevertheless, the balance with the level of product utiltsation will confirm Lithua- nia's position as a net imPorter.

Iobls 32 Plg meol prolecllont 1996 $n 199E Slaughtered 000h 1136 I 130 1l4l Average weight Kg. 78 8l 82 hoduction 00ft 89 92 94 Availability 000t 9l 92 94 Food per capita Kg. 23,8 24,2 24,7 Sclf-sufficicncy %98 100 99

1997 Preliminary; 1998 Estimate4 2000'2003 Forecast

Ioble 33 Poultry meot prole(llont

1996 tgyl l99t

Slaughtered 000h t7377 18000 18360 Average weight Kg. 1,4 1,4 1,4 hoduction 000t 25 26 27 Availability 000t 26 28 29 Food per capita Kg. 7,1 7,5 7,8 Self-sufficiency % 96 94 93

1997 Preliminary; 1998 Estimate4 2000-2003 Forecast Glossary/Abbreviations

BFTA Baltic Free Trade Agreement GDP Gross Domestic Product

CECs Central and Eastern Europe IMF International Monetary Fund

CEFTA Central European Free Trade Associa- LT Litas tion MFN Most Favourite Nation COMECON Council for Mutual Economic Assis­ tance MMPP Minimum Marginal Purchase Price

CPI Consumer Price Index NIS Newly Independent States (from the former Soviet Union) ECU European Currency Unit OECD Organisation for Economic Co-opera­ EU European Union tion and Development

FAO Food and Agriculture Organisation PPS Purchase Parity Standard

FDI Foreign Direct Investment TAIEX Technical Assistance Information Exchange Office of the European FTA Free Trade Agreement (Tariff conces­ Commission sion) WTO World Trade Organisation GAO Gross Agricultural Output WB World Bank GATT General Agreement on Tariffs and Trade

CEC Reports - Litlwania > 43 Main Sources Used

Csaki Csaba, W. H. Meyers, N. Kaslauskiene, Status Kazlauskiene Natalija, Integration of Lithuanian ofAgricultural Reform in Lithuania: 1995 to 1997, Agriculture, in Lithuania sIntegration into the Euro­ The World Bank, Washington D.C., January 1998- pean Union. Summary of the Study on the Status, 05-15 Perspectives and Impact. Vilnius. Vilnius, 1997

Economist Intelligence Unit, CountJ:v Report: Kazlauskiene Natalija, BFTA: Agricultural and Lithuania, several editions Trade Policies in the Baltics. in Regional Trade Arrangements and Agricultural Policy in Central European Commission DG VI, Agricultural situa­ and Eastern Europe. Wye College Press, 1998 tion and prospects in the Central and Eastern Euro­ pean Countries. Lithuania. 1995 OECD, Review of Agricultural Policy: Lithuania. CCET I AGRITD(96)39 European Commission, The CAP and enlargement­ Agr(food price and developments in five associated OECD, Lithuania: Agricultural Finance and Credit. countries. European Economy, Reports and Studies, Impediments to Efficiency in the Agro{ood Chain. n.2, 1997 and Foreign Direct Investrnent in the Agro{ood Sec­ tOt; CCET I AG RIEG(97)94 European Commission, Opinion on the Lithuania s application for Membership ofthe European Union, OECD, Review of Agricultural Policy, Market and Bulletin of the European Union, Supplement 12197 Trade Developments in Lithuania in 1997. CCNMI AGRIEG(98)20 Giugale Marcelo M., Lithuania: Macroeconomic Issues and Prospects for a Transition Economy at a OECD, Agricultural Policies in Transition Crossroads in editors W.H. Meyers, N. economies. Monitoring and Evaluation, several Kazlauskiene, and M. M. Giugale. Through Transi­ editions tion to Accession: Lithuania sRural Economy on the Way to the EU (forthcoming) Statistical Office of Lithuania, Agriculture in Lithuania. Several Editions

44 c CEC Reports - Lithuania ANNEX 1: The Veterinary Sector •1n Lithuania

[This Annex has been prepared by TAIEX] Europe (FVE). Further intensive in and out country training for state veterinary officials The great importance of the beef and dairy sector in is provided by TAIEX seminars and various Lithuania suggests that the veterinary sector is a key Phare programmes. This should be contin­ agricultural policy area, particularly with regard to ued systematically through to the implemen­ the pre-accession strategy and to safeguarding tation and application of the EU veterinary export markets. In a functional analysis of the vet­ acquis. erinary sector at least five sub-sectors are to be dis­ tinguished. B. The State Veterinary Sector

A. Veterinary Education and B.l The State Veterinary Service (SVS) was Training Sector established in 1991. It is an autonomous organisation, reporting directly to the Prime A.l The place to obtain training and to qualify as Minister but with close links to the Ministry a veterinarian is the Lithuanian Veterinary of Agriculture. Generally, it is responsible Academy at Kaunas. There are two faculties, for the control of animal health, of zoonosis the Faculty of Veterinary Medicine and the infections and the veterinary public health Faculty of Animal Husbandry Technology. control of products of animal origin, includ­ 65 applicants are admitted annually to the ing food. Only food of animal origin in veterinary medicine faculty, representing shops and supermarkets is excluded from about 0.002% of the Lithuanian population. control by the veterinary services. The Vet­ This is sufficient for the future needs of the erinary Council of Lithuania, which com­ veterinary profession. Training lasts 5 years. prises representatives and specialists from the State Veterinary Service, the Lithuanian A.2 The veterinary faculty maintains close rela­ Veterinary Academy and the Lithuanian Vet­ tions with EU veterinary faculties in Den­ erinary Institute has a general advisory func­ mark, France and Germany; but it has not tion for the whole veterinary sector. In gen­ undergone an evaluation procedure with eral, therefore, procedures for the control of regard to the application of EU training products are comprehensive and well inte­ schemes and teaching programmes. grated with the animal health controls.

AJ There is no formal scheme for postgraduate B.2 The EU veterinary acquis is in the process of training except for the general qualification being translated into Lithuanian and of Doctor in Veterinary Medicine at the Vet­ analysed for ways to integrate it into the erinary Academy. Continuous professional national veterinary legislation. In areas such development is by monthly meetings of the as food legislation , framework acts need to State Veterinary Service, by academic cours­ be drafted. It seems that a lot of general es organised by Kaunas Consultancy Centre work on legislation remains to be done in or by the Lithuanian Veterinary Association. order to create a transparent legal system This association has become an observer which will allow efficient enforcement member of the Federation ofVeterinarians of

CEC Reports - Lithuania > 45 without overlaps and the development of fair B.5 At present, there is no computerised commu­ trading conditions for the agri-food industry. nication network. The headquarters, regional and local veterinary services and the BIPs B.3 Operating in headquarters, Veterinary legis­ should be linked in due course, in particular lation is enforced by the State Veterinary to control the transit flow. In addition, the Service, through 4 departments, 10 county EU veterinary IT tools like ADNS, Animo, veterinary services, 34 district State veteri­ Shift and Inforvet need to be installed as an nary services and 5 city veterinary stations. integrated system. There is one national veterinary laboratory and a laboratory at each of the county and B.6 The animal health situation concerning OlE­ district institutions. 23 border inspection List A diseases appears to be extremely posts (BIPs) have been established on the good. No cases have been reported since Lithuanian land borders with Latvia, Poland, 1993, whereas a few cases of OlE-List B dis­ Belorussia and Kaliningrad, at 3 airports and eases like Rabies and Enzootic Bovine Leu­ 2 sea ports. Following the accession of cosis have occurred. The main obstacle to Lithuania and their neighbouring Associated the trade of pigs and non heat treated pig Countries to the EU, the number of BIPs at products with the EU is the continuation of road and rail border crossings can be greatly regular vaccination of 60% of the Lithuanian reduced, and priority given to the construc­ pig population against Classical Swine tion and equipment of long-term BIPs with Fever. Assistance is required to elaborate Belorussia and Kaliningrad and the interna­ disease monitoring and surveillance plans as tional ports and airports of Lithuania. In well as contingency plans. particular there is a need to build inspection and lairage/storage facilities, both for live B.7 As the State Veterinary Service's main aim animals and products of animal origin, and has been to act against contagious diseases, to equip them according to EU requirements, the EU's rules and requirements on animal including a communication network. Border welfare will create further tasks in the future. inspection procedures are similar to those of the EU, including checks on transit. The B.8 In the field of public health, in particular traffic through the port of Klaipeda and food control, the three institutions involved - Kaliningrad to and from Russia and other the State Veterinary Service, the State Qual­ CIS countries creates a huge number of tran­ ity Inspection and the Hygiene Centres - as sit consignments through Lithuania, exceed­ well as more than 100 food laboratories are ing national imports by a multiple of 50 to being reorganised to improve co-ordination. 300. The BIPs are operated under the Bor­ As up to now there has been no formal co­ der and Transport State Veterinary Service as ordination between these institutions, over­ a constituent unit of the State Veterinary Ser­ regulation has resulted, without leading to an vice. effective and efficient food control system. This may have contributed to Lithuania not B.4 The SVS employs about 600 veterinarians. being permitted to export meat, cattle, pigs, About another 1400 veterinarians are sheep & goats to the EU, as the EU has failed engaged in practices; 170 veterinarians are to approve Lithuania's residue monitoring busy with the operation of private veterinary and sampling plan. As zoonosis problems pharmacies and supply companies. have been identified, such as Trichinella in

46 c CEC Report;· - Lithuaniu pigs, a project on this health risk has been on the breeding population of cattle, by established, supported by the FAO. which about 115 of the cow population (500.000) and about 890 larger farms are registered. C. The Private Veterinary Sector D.2 The domestic population of livestock is esti­ C.l As there is no veterinary chamber in Lithua­ mated to be about 1 mio cattle, 1.8 mio pigs, nia, most veterinary practitioners are mem­ 48.000 sheep and goats, 77.000 horses and bers of the Lithuanian Veterinary Associa­ 8.4 mio poultry. An exact figure for the total tion, which represents the profession. Vet­ number of holdings keeping livestock cannot erinary activities in the private sector are be given, because of the lack of a registration subject to license. system for the huge number of recently cre­ ated smaller farms and household plots. C.2 Two licenses can be obtained, one for prac­ However, more than 50% of the livestock tice and another for the veterinary distribu­ population is kept on these farms. The farms tion of pharmaceuticals. Some veterinarians which represent the highest animal health hold both licenses. There are serious con­ risk are large, private pig farms with between cerns about residue safety and bacterial drug 28.000 and 54.000 animals kept in one place. resistance, because the Lithuanian system allows free access to pharmaceuticals, which 0.3 A national animal health trust fund does not can be applied to animals by non veterinari­ exist at present, and support is needed to set ans or farmers. one up. If the need should arise for an erad­ ication measure such as a slaughter out, the C.3 Private veterinarians are also engaged under Ministry of Agriculture would at present the current animal and public health compensate the farmers. schemes. For example, private veterinarians are involved in measures taken to eradicate a disease or to work in food processing plants. E. The Processing Industry under For some of these activities they are reim­ Veterinary Legislation bursed by the State Veterinary Service. E. I Reflecting the current situation of the agri­ C.4 The income of private veterinarians is sub­ cultural sector, animal production is still an ject to problems of taxation which apparent­ important component of farming in Lithua­ ly discourage the creation of larger practices nia and so is the processing of animal prod­ and specialisation. On the other hand, farm­ ucts. This requires a competitive industry, ers have difficulties paying veterinarians for which meets EU hygiene and technical stan­ their work, particularly small-sized farms dards, laid down by the relevant veterinary and household plots which keep animals. directives on meat, milk, fish, eggs and other products of animal origin.

D. Livestock Sector E.2 Unfortunately, only one game-meat plant and 11 dairy processing plants have so far D.l At present, neither a full register of holdings been approved under EU legislation. None nor an identification system exists in Lithua­ of the -20 fishing vessels nor -50 fish pro­ nia. The Breeding Department has data only cessing plants have been approved yet.

CEC Report5 - Lithuanw .,. 47 EJ Concerning the CP/HACCP concepts, there Conclusion is still little emphasis on self-regulation in the food industry through the application of i) Animal production and the processing of these new management systems for food animal products are still important for hygiene and quality assurance. Lithuanian agriculture. Major stumbling blocks to EU accession however are: E.4 The strict application of the new concepts and standards, as well as good manufactur­ - the ongoing CSF vaccination policy in the ing I good laboratory practices, will help to pig industry, solve major problems for the integration of Lithuania's agri-processing industry into the - lack of a proper system of animal identifi­ EU markets. Substantial funds are also clear­ cation, registration and movement control, ly needed for the technical upgrading of the industry. - the lack of EU approval for a residue mon­ itoring and sampling plan,

- the industry's non-application of self­ supervision concepts and lack of funds for necessary technical upgrading to meet EU standards and fulfil EU requirements.

ii) The introduction of these measures will require significant investment in training and industrial infrastructure.

48 < CEC Reports - Lithuania 1 ANNEX 2 : Phare activity - agricultural sector

Status of Current & Upcoming have until now been produced in Sweden. The pro­ Proiects ject has just completed its inception phase. There appear to be no implementation problems. Summary Agro-industrial Restructuring A summary of project contracting status is provided (FM95- 400.000 Ecu) in Table 1, with a visual indication of the contracting timetable in Figure 1. A brief descriptive summary A re-tender of the project took place during early of all current and prospective projects from these October with the contract being awarded to RIAS of schedules is provided below. the Netherlands and signed in Brussels immediately prior to Christmas. Project implementation com­ menced in February and is therefore still in the Current Proiects inception period. The project provides focused Con­ sultancy inputs to six agroprocessing enterprises. Project Implementation Unit The enterprises to participate in the project have (FM94 - 2.633 Mecu) been selected after an open competition organised by the Ministry. The legal duration of the contract ends on 8th May. There remain only short inputs to be delivered from Development of a National Food Laboratory the current Phare Adviser and the European Integra­ (GTAF95, 2.000 Mecu) tion Adviser. The Phare PIU was closed on 3181 De­ cember 1997, its functions replaced by a division The project commenced in October 1997. Consider­ within the Ministry. The project also supported the able delays were experienced itl obtaining an development of an Agribusiness Training Centre approved inception report due to the poor quality of (ABTC) and the Lithuanian Agricultural Interna­ early drafts and uncertainty whether the project tional Trade Agency (LAITA). should assist one or two national laboratories. These issues are now resolved and the project is delivering Grassland Management (FM94 - 1.000 Mecu) outputs. The project will equip a national food con­ trol laboratory and assist in the development of a The project promotes the use of improved grassland food control system in general. The main result to management techniques in Lithuania, notably the date has been the preparation of a draft Food Law. use of big-bale silage technology. The project lasts until the end of 1998. Land Reclamation (FM95- 325.000 Ecu, FM96- 475.000 Ecu) Orthophoto Production (FM94 - 350.000 Ecu) The first phase of a two-phase project has been com­ The project will enable Lithuania to produce its own pleted. The second phase will commence in April. orthophoto maps to assist with land surveys which The first phase was a feasibility study of pilot land

' This annex was prepared with the assistance ofDG IA.

CEC Reports - Lllhuania > 49 reclamation actions. The second phase will imple­ Upcoming Proiects ment some of these actions. The beneficiary is high­ ly satisfied with the progress of the project. Training & EU Integration (FM95 - 440.000 Ecu) Agro-service Development (FM96 - 500.000 Ecu) The project contract was signed with BER of Bel­ gium in December. However the project start was The project, which seeks to develop "model" delayed due to the unexpected withdrawal of the approaches to machinery service provision, has just proposed Team Leader. Alternative candidates for prepared its draft inception report. The report is of a this position are under discussion with the project good quality, but still awaits the approval of the ben­ expected to commence at the end of March. The pro­ eficiary who are not satisfied with the quality of the ject will seek to upgrade the skills of those Ministry Lithuanian translation. Approval may be expected staff to be involved in the EU accession process. within two weeks to allow project implementation to commence. Loan Guarantee Fund (FM96 - 1.000 Mecu & FM97 - 1.000 Mecu) Rural Credit (FM96- 300.000) The project, which aims to support the establish­ The project provides technical support to the estab­ ment of a government funded Rural Credit Guaran­ lishment of the rural credit loan guarantee scheme. tee Fund (RCGF) is at a critical stage. Although a The project is contracted through the agriculture and Memorandum of Understanding has been signed banking framework contracts. More information on between the Commission and the Ministry on the the guarantee scheme is provided below. main principles of the fund, some of the conditions of the Memorandum have not been fulfilled to the Quality Management (FM96- 400.000 Ecu) satisfaction of the Commission. It is hoped that agreement on the remaining issues may be made Following the tender evaluation during the previous during March to enable the funds to be disbursed period, a contract for the implementation of the pro­ within the next two months. ject was signed with AETS of France in December. The project commenced on February 1st and is Phare PIU/PADP PMU therefore still in the inception period. The project (FM96 - 700.000 Ecu & FM97 - 600.000 Ecu) will assist ten dairies to implement quality manage­ ment systems. The ten dairies to participate in the The funds were combined to form a singly 1.3 project have been selected after an open competition MECU project "Institutional Development for vu organised by the Ministry. Close co-operation will integration". This was tendered in December and be maintained with the Agro-industrial restructuring January with the contract provisionally due to be project. awarded to NEI of the Netherlands. It is expected that the project may commence in May. This will be the main project in support of the EU accession process in the Ministry.

50 c CEC Reports - Lithuania Land Market Development (FM96-200.000 Ecu) Assessment of needs of veterinary and & Land Policy (FM97-250.000) phytosanitary control (FM97- 150.000)

These allocations were combined to form a larger The project title is self-explanatory. Two consultants project "TA to Land Privatisation" which was ten­ will arrive from 23rd March to commence the pro­ dered in autumn 1997. However the contract has not ject, which has been contracted through the agricul­ been signed due to anomalies in the tendering tural framework contract. process. Discussions will be held on the status of the contract during March. The project aims to provide Assessment of needs of animal identification further support to accelerate the land registration (FM97- 100.000) process. The project title is self-explanatory. A consultant Trade Promotion (FM96 - 400.000) will arrive from 30th March to commence the pro­ ject, which has been contracted through the agricul- The project provides further support to the estab- tural framework contract. lishment of a trade promotion agency for the food and agricultural sectors. The project has been ten­ dered and is provisionally due to be awarded to BC Consult of Germany. It is expected that the project may commence in April.

Market Information &Agricultural Statistics (FM97)

A consultant is currently preparing the TOR for the project, which should be announced on the Internet in March. The project will focus on the development of a domestic price International system.

CEC Reports - Lithuania > 51 Phare Assistance Unit for Agriculture, Lithuania

Table 1 · Proiect Programming as at March 1998

Table 1- Project Programming as at March 1998

1995 FINANCING MEMORANDUM - AGRICULTURE PROJECT AMOUNT STATE OF DATE OF DATE OF PROJECT DURATION (000 Ecu) PREPARATION PREPARATION START Land Reclamation - Phase I 324,721 Pro_1ect m progress Jun-96 Jun-97 8 months Land Informauon Systems 384,04 5 Project completed contracted Feb-96 12 months Strateg1c & Management Assistance to LAAS 291.234 Project completed contracted Jan-96 12 months HRD for EU Integration • 400,000 ProJect contracted Mar-97 Feb-98 12 months Agro-lndustnal Restructurmg - Pan 2 - 325,000 Project m progress Dec-96 Feb-98 12 months Reallocation to A1d Co-ordmation Unit 175,000 Reallocated n/a nla n/a Total currently allocated I 900 000 To be allocated 0 FINANCING MEMORANDUM ALLOCATION 1 900 000

1995 FINANCING MEMORANDUM- GTAF EUROPEAN INTEGRATION PROJECT AMOUNT STATE OF I DATEOF I DATEOF I PROJECT (000 Ecu) PREPARATION PREPARATION START DURATION I Quality laboratories I 2,000,000 Project m progress I Jun-96 I Jun-97 I 24 months I FINANCING MEMORANDUM ALLOCATION 2,000,000

1996 FINANCING MEMORANDUM -AGRICULTURE PROJECT AMOUNT STATE Of DATE OF DATE OF PROJECT (000 Ecu) PREPARATION PREPARATION START DURATION Loan Guarantee Fund 1,000 000 Fund bemg established n1a May-98 n/a Phare PIU I PADP PMU 700,000 Awa111ng contracting Sep-97 May-98 24 months Land Reclamation - Phase II 475,279 Planned extenston of first phase .lun-96 Apr-98 8 months Cattle Breeding 250 000 ProJect exters10n completed Aug-96 Feb-97 II months Land Market Development 300,000 Photocopiers procured for I 00 000 Nov-96 Mar-97 n/a remainder allocated to Land Policy (FM97) Agn-Senvice Centres 500,000 Project in progress Nov-96 Nov-97 18 months Trade Promobon 400,000 Project tendered awaiting contract Jul-97 Apr-98 18 months Quality Management 400,000 Project in progress May-97 Feb-98 li, nqonths Rural Credit 300,000 Framework TOR agreed and in progress Nov-96 Mar-97 12 months Total currently allocated 4,325,279 Allocated to purchase of cattle breed1ng 174,721 equipment FINANCING MEMORANDUM ALLOCATION 4,500,000

1997 FINANCING MEMORANDUM -AGRICULTURE & EU INTEGRATION PROJECT AMOUNT STATE OF DATE OF DATE OF PROJECT (000 Ecu) PREPARATION PREPARATION START DURATION Loan Guarantee Fund 1000 000 Fund being established n/a May-98 n/a Phare PIU I PADP PNIU 600,000 Tendered as EU integration support Sep-97 May-98 24 months ... Land policy 200,000 Allocated to tender w1th FM96(tendered) Jul-97 Mar-98 18 months Market mformat1on and organisation • • • • 150,000 To improve agr1cultural market Oct-97 Jul-98 I b d mfonnallon EU pre-access10n needs assessments 250,000 To ass1st EU integration process Oct-97 Mar-98 5 months Agncultural stat1st1cs • .. • 200,000 To 1m prove agricultural market Oct-97 Jul-98 I b d mfonnation Overallocat1cns (see below) 200,000 FINANCING MEMORANDUM ALLOCATION 2,600,000

Overallocations:

• HRD for EU Integration (FM9S) 40,000 • • Agro-lndustrial Restructuring - Part 2 • • (FM95) 60,000 ••• Land policy (FM97) ~ 200.000

• • ** to be tendered jointly as one project

52 < CEC Reports - Lithuania Phore Assistonce Unit for Agriculture, lithuonio

Figure | - Phore Proiect Progromming lime|oble r997 1998 AMOUNT Oct Nov Dec Jan Feb Mar Apt Muy Jun I Jul AuglSeplOctlNovlDec FM (ECU) I I I I I I I Current Projects Phare PIU 94 | 47t,270 ABTC 94 729,700 Agricultural Trade Agency 94 235,580 Rural Banking 94 325,9t0 Grassland Management 94 1,000,000 Orthophoto Production Line 94 330,000 Quality Laboratories 95 2,000,000 Agro-service Centers 95 500,000 Agro-industrial Restructuring 95 400,000 Human Ressource Development 95 440,000 Land Reclamation 95t96 800,000 Cattle Breeding 96 250,000 Quality Management 96 400,000 Rural Credit 9(; 300,000

Prospective projects Trade promotion 96 400,000 TA to Land Registration 96197 500,000 o |r o Rural Credit Loan Guarantee Fund 96t97 2,000,000 b \ Technical support for EU Integration 1,300,000 Market Information & statistics 97 350,000 rt Veterinary & phytosanitary control 97 150,000 Animal identification 97 100.000

Y It g, PATTERN KEY Tenderedprojects I Framework contract projects Transfer of funds I European Commission

Lithuania - Agricultural Situation and Prospects in the Central and Eastern Countries

Luxembourg: Office for Official Publications of the European Communities

1998-54 p., 5 figs, 3 maps- 21,0 x 29,7 em

ISBN 92-828-3698-3 Venta • Salg • Verkauf • nwAI\0&1<; • Sales • Vente • Vendita • Verkoop • Venda • Myynti • Forsaljning

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6/98 ~I (') I Co 0') I (!) co I 6 0 0') I rn z I (')

' liT • t .!""

European Commission Directorate~General for Agriculture (DG VI)

The present report forms part of a series on Central and Eastern European countries published by the Directorate-General for Agriculture at the European Commission.

The country reports aim to provide an analysts of the current situation and the medium-term outlook ... for the agricultural and agro-food sectors in the accession candidate countries...... '

\

ISBN 92-828-3698-3

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